Correlation Between Imperial Brands and Grupo Aval

Can any of the company-specific risk be diversified away by investing in both Imperial Brands and Grupo Aval at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Imperial Brands and Grupo Aval into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Imperial Brands PLC and Grupo Aval, you can compare the effects of market volatilities on Imperial Brands and Grupo Aval and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Imperial Brands with a short position of Grupo Aval. Check out your portfolio center. Please also check ongoing floating volatility patterns of Imperial Brands and Grupo Aval.

Diversification Opportunities for Imperial Brands and Grupo Aval

0.47

Correlation Coefficient

Imperial Brands  Grupo Aval

Very weak diversification

The 3 months correlation between Imperial and Grupo is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Imperial Brands PLC and Grupo Aval in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grupo Aval and Imperial Brands is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Imperial Brands PLC are associated (or correlated) with Grupo Aval. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grupo Aval has no effect on the direction of Imperial Brands i.e., Imperial Brands and Grupo Aval go up and down completely randomly.

Pair Corralation between Imperial Brands and Grupo Aval

Assuming the 90 days horizon Imperial Brands PLC is expected to under-perform the Grupo Aval. But the otc stock apears to be less risky and, when comparing its historical volatility, Imperial Brands PLC is 1.85 times less risky than Grupo Aval. The otc stock trades about -0.05 of its potential returns per unit of risk. The Grupo Aval is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  221.00  in Grupo Aval on January 20, 2024 and sell it today you would earn a total of  14.00  from holding Grupo Aval or generate 6.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Imperial Brands PLC  vs.  Grupo Aval

Imperial Brands PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Imperial Brands PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Grupo Aval

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Grupo Aval has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Imperial Brands and Grupo Aval

The main advantage of trading using opposite Imperial Brands and Grupo Aval positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Imperial Brands position performs unexpectedly, Grupo Aval can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Grupo Aval will offset losses from the drop in Grupo Aval's long position.

The idea behind Imperial Brands PLC and Grupo Aval pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the FinTech Suite module to use AI to screen and filter profitable investment opportunities.