Correlation Between Aristocrat Leisure and Japan Tobacco

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

Diversification Opportunities for Aristocrat Leisure and Japan Tobacco

AristocratJapanDiversified AwayAristocratJapanDiversified Away100%
-0.46
  Correlation Coefficient

Very good diversification

The 3 months correlation between Aristocrat and Japan is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Aristocrat Leisure Limited and Japan Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Tobacco and Aristocrat Leisure 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 Aristocrat Leisure Limited 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 Aristocrat Leisure i.e., Aristocrat Leisure and Japan Tobacco go up and down completely randomly.

Pair Corralation between Aristocrat Leisure and Japan Tobacco

Assuming the 90 days horizon Aristocrat Leisure Limited is expected to generate 1.29 times more return on investment than Japan Tobacco. However, Aristocrat Leisure is 1.29 times more volatile than Japan Tobacco. It trades about 0.12 of its potential returns per unit of risk. Japan Tobacco is currently generating about -0.1 per unit of risk. If you would invest  4,240  in Aristocrat Leisure Limited on November 30, 2024 and sell it today you would earn a total of  200.00  from holding Aristocrat Leisure Limited or generate 4.72% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Aristocrat Leisure Limited  vs.  Japan Tobacco

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -5051015
JavaScript chart by amCharts 3.21.15AC8 JAT
       Timeline  
Aristocrat Leisure 

Risk-Adjusted Performance

Modest

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Aristocrat Leisure Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Aristocrat Leisure may actually be approaching a critical reversion point that can send shares even higher in March 2025.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb41424344454647
Japan Tobacco 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Japan Tobacco has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb23.52424.52525.526

Aristocrat Leisure and Japan Tobacco Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-5.14-3.85-2.56-1.27-0.02151.322.664.05.34 0.050.100.15
JavaScript chart by amCharts 3.21.15AC8 JAT
       Returns  

Pair Trading with Aristocrat Leisure and Japan Tobacco

The main advantage of trading using opposite Aristocrat Leisure and Japan Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aristocrat Leisure 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 Aristocrat Leisure Limited 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.

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