Correlation Between Japan Post and Japan Tobacco
Can any of the company-specific risk be diversified away by investing in both Japan Post 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 Japan Post and Japan Tobacco into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Japan Post Insurance and Japan Tobacco, you can compare the effects of market volatilities on Japan Post 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 Japan Post with a short position of Japan Tobacco. Check out your portfolio center. Please also check ongoing floating volatility patterns of Japan Post and Japan Tobacco.
Diversification Opportunities for Japan Post and Japan Tobacco
0.47 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Japan and Japan is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Japan Post Insurance and Japan Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Tobacco and Japan Post 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 Japan Post Insurance 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 Japan Post i.e., Japan Post and Japan Tobacco go up and down completely randomly.
Pair Corralation between Japan Post and Japan Tobacco
Assuming the 90 days trading horizon Japan Post is expected to generate 2.65 times less return on investment than Japan Tobacco. In addition to that, Japan Post is 1.16 times more volatile than Japan Tobacco. It trades about 0.02 of its total potential returns per unit of risk. Japan Tobacco is currently generating about 0.05 per unit of volatility. If you would invest 1,880 in Japan Tobacco on September 19, 2024 and sell it today you would earn a total of 682.00 from holding Japan Tobacco or generate 36.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Japan Post Insurance vs. Japan Tobacco
Performance |
| Timeline |
| Japan Post Insurance |
| Japan Tobacco |
Japan Post and Japan Tobacco Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Japan Post and Japan Tobacco
The main advantage of trading using opposite Japan Post and Japan Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Japan Post 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 Japan Post Insurance 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.| Japan Tobacco vs. TROPHY GAMES DEV | Japan Tobacco vs. SALESFORCE INC CDR | Japan Tobacco vs. The Boston Beer | Japan Tobacco vs. ANGLER GAMING PLC |
Check out your portfolio center.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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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