Correlation Between ScanSource and IMPERIAL TOBACCO

Can any of the company-specific risk be diversified away by investing in both ScanSource and IMPERIAL TOBACCO 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 ScanSource and IMPERIAL TOBACCO into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ScanSource and IMPERIAL TOBACCO , you can compare the effects of market volatilities on ScanSource and IMPERIAL TOBACCO 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 ScanSource with a short position of IMPERIAL TOBACCO. Check out your portfolio center. Please also check ongoing floating volatility patterns of ScanSource and IMPERIAL TOBACCO.

Diversification Opportunities for ScanSource and IMPERIAL TOBACCO

-0.62

Correlation Coefficient

ScanSource  IMPERIAL TOBACCO

Excellent diversification

The 3 months correlation between ScanSource and IMPERIAL is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding ScanSource and IMPERIAL TOBACCO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IMPERIAL TOBACCO and ScanSource 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 ScanSource are associated (or correlated) with IMPERIAL TOBACCO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IMPERIAL TOBACCO has no effect on the direction of ScanSource i.e., ScanSource and IMPERIAL TOBACCO go up and down completely randomly.

Pair Corralation between ScanSource and IMPERIAL TOBACCO

Assuming the 90 days horizon ScanSource is expected to generate 1.46 times more return on investment than IMPERIAL TOBACCO. However, ScanSource is 1.46 times more volatile than IMPERIAL TOBACCO . It trades about 0.2 of its potential returns per unit of risk. IMPERIAL TOBACCO is currently generating about -0.01 per unit of risk. If you would invest  2,700  in ScanSource on April 20, 2025 and sell it today you would earn a total of  760.00  from holding ScanSource or generate 28.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

ScanSource  vs.  IMPERIAL TOBACCO

ScanSource

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ScanSource are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, ScanSource reported solid returns over the last few months and may actually be approaching a breakup point.

IMPERIAL TOBACCO

Risk-Adjusted Performance

Very Weak

Over the last 90 days IMPERIAL TOBACCO has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental drivers, IMPERIAL TOBACCO is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with ScanSource and IMPERIAL TOBACCO

The main advantage of trading using opposite ScanSource and IMPERIAL TOBACCO positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ScanSource position performs unexpectedly, IMPERIAL TOBACCO 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 IMPERIAL TOBACCO will offset losses from the drop in IMPERIAL TOBACCO's long position.

The idea behind ScanSource and IMPERIAL TOBACCO 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 Global Correlations module to find global opportunities by holding instruments from different markets.