Correlation Between British American and JAPAN TOBACCO
Can any of the company-specific risk be diversified away by investing in both British American 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 British American and JAPAN TOBACCO into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between British American Tobacco and JAPAN TOBACCO UNSPADR12, you can compare the effects of market volatilities on British American 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 British American with a short position of JAPAN TOBACCO. Check out your portfolio center. Please also check ongoing floating volatility patterns of British American and JAPAN TOBACCO.
Diversification Opportunities for British American and JAPAN TOBACCO
0.24 | Correlation Coefficient |
Modest diversification
The 3 months correlation between British and JAPAN is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and JAPAN TOBACCO UNSPADR12 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JAPAN TOBACCO UNSPADR12 and British American 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 British American Tobacco 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 UNSPADR12 has no effect on the direction of British American i.e., British American and JAPAN TOBACCO go up and down completely randomly.
Pair Corralation between British American and JAPAN TOBACCO
Assuming the 90 days trading horizon British American is expected to generate 4.77 times less return on investment than JAPAN TOBACCO. But when comparing it to its historical volatility, British American Tobacco is 1.19 times less risky than JAPAN TOBACCO. It trades about 0.01 of its potential returns per unit of risk. JAPAN TOBACCO UNSPADR12 is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 836.00 in JAPAN TOBACCO UNSPADR12 on August 26, 2024 and sell it today you would earn a total of 434.00 from holding JAPAN TOBACCO UNSPADR12 or generate 51.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
British American Tobacco vs. JAPAN TOBACCO UNSPADR12
Performance |
| Timeline |
| British American Tobacco |
| JAPAN TOBACCO UNSPADR12 |
British American and JAPAN TOBACCO Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with British American and JAPAN TOBACCO
The main advantage of trading using opposite British American and JAPAN TOBACCO positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if British American 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.| British American vs. The Yokohama Rubber | British American vs. Magnachip Semiconductor | British American vs. Goodyear Tire Rubber | British American vs. GOODYEAR T RUBBER |
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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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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