Correlation Between GFL ENVIRONM and Japan Tobacco

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Can any of the company-specific risk be diversified away by investing in both GFL ENVIRONM and Japan 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 GFL ENVIRONM and Japan Tobacco into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between GFL ENVIRONM and Japan Tobacco, you can compare the effects of market volatilities on GFL ENVIRONM and Japan 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 GFL ENVIRONM with a short position of Japan Tobacco. Check out your portfolio center. Please also check ongoing floating volatility patterns of GFL ENVIRONM and Japan Tobacco.

Diversification Opportunities for GFL ENVIRONM and Japan Tobacco

-0.48
  Correlation Coefficient

Very good diversification

The 3 months correlation between GFL and Japan is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding GFL ENVIRONM and Japan Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Tobacco and GFL ENVIRONM 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 GFL ENVIRONM are associated (or correlated) with Japan Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Japan Tobacco has no effect on the direction of GFL ENVIRONM i.e., GFL ENVIRONM and Japan Tobacco go up and down completely randomly.

Pair Corralation between GFL ENVIRONM and Japan Tobacco

Assuming the 90 days horizon GFL ENVIRONM is expected to generate 1.19 times more return on investment than Japan Tobacco. However, GFL ENVIRONM is 1.19 times more volatile than Japan Tobacco. It trades about 0.3 of its potential returns per unit of risk. Japan Tobacco is currently generating about 0.02 per unit of risk. If you would invest  3,519  in GFL ENVIRONM on August 28, 2024 and sell it today you would earn a total of  841.00  from holding GFL ENVIRONM or generate 23.9% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

GFL ENVIRONM  vs.  Japan Tobacco

 Performance 
       Timeline  
GFL ENVIRONM 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in GFL ENVIRONM are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, GFL ENVIRONM reported solid returns over the last few months and may actually be approaching a breakup point.
Japan Tobacco 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Japan Tobacco has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Japan Tobacco is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

GFL ENVIRONM and Japan Tobacco Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with GFL ENVIRONM and Japan Tobacco

The main advantage of trading using opposite GFL ENVIRONM and Japan Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GFL ENVIRONM position performs unexpectedly, Japan 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 Japan Tobacco will offset losses from the drop in Japan Tobacco's long position.
The idea behind GFL ENVIRONM and Japan 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.

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