Correlation Between Japan Tobacco and ABB
Can any of the company-specific risk be diversified away by investing in both Japan Tobacco and ABB 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 Tobacco and ABB into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Japan Tobacco and ABB, you can compare the effects of market volatilities on Japan Tobacco and ABB 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 Tobacco with a short position of ABB. Check out your portfolio center. Please also check ongoing floating volatility patterns of Japan Tobacco and ABB.
Diversification Opportunities for Japan Tobacco and ABB
-0.04 | Correlation Coefficient |
Good diversification
The 3 months correlation between Japan and ABB is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Japan Tobacco and ABB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABB and Japan Tobacco 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 Tobacco are associated (or correlated) with ABB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABB has no effect on the direction of Japan Tobacco i.e., Japan Tobacco and ABB go up and down completely randomly.
Pair Corralation between Japan Tobacco and ABB
Assuming the 90 days horizon Japan Tobacco is expected to generate 1.87 times less return on investment than ABB. But when comparing it to its historical volatility, Japan Tobacco is 1.1 times less risky than ABB. It trades about 0.05 of its potential returns per unit of risk. ABB is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 2,785 in ABB on September 3, 2024 and sell it today you would earn a total of 2,465 from holding ABB or generate 88.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Japan Tobacco vs. ABB
Performance |
| Timeline |
| Japan Tobacco |
| ABB |
Japan Tobacco and ABB Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Japan Tobacco and ABB
The main advantage of trading using opposite Japan Tobacco and ABB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Japan Tobacco position performs unexpectedly, ABB 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 ABB will offset losses from the drop in ABB's long position.| Japan Tobacco vs. British American Tobacco | Japan Tobacco vs. JAPAN TOBACCO UNSPADR12 | Japan Tobacco vs. Imperial Brands 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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