Correlation Between Japan Tobacco and LAir Liquide
Can any of the company-specific risk be diversified away by investing in both Japan Tobacco and LAir Liquide 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 LAir Liquide into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Japan Tobacco and LAir Liquide SA, you can compare the effects of market volatilities on Japan Tobacco and LAir Liquide 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 LAir Liquide. Check out your portfolio center. Please also check ongoing floating volatility patterns of Japan Tobacco and LAir Liquide.
Diversification Opportunities for Japan Tobacco and LAir Liquide
0.08 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Japan and LAir is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Japan Tobacco and LAir Liquide SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LAir Liquide SA 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 LAir Liquide. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LAir Liquide SA has no effect on the direction of Japan Tobacco i.e., Japan Tobacco and LAir Liquide go up and down completely randomly.
Pair Corralation between Japan Tobacco and LAir Liquide
Assuming the 90 days horizon Japan Tobacco is expected to generate 1.26 times more return on investment than LAir Liquide. However, Japan Tobacco is 1.26 times more volatile than LAir Liquide SA. It trades about 0.04 of its potential returns per unit of risk. LAir Liquide SA is currently generating about 0.01 per unit of risk. If you would invest 2,350 in Japan Tobacco on September 12, 2024 and sell it today you would earn a total of 257.00 from holding Japan Tobacco or generate 10.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 99.6% |
| Values | Daily Returns |
Japan Tobacco vs. LAir Liquide SA
Performance |
| Timeline |
| Japan Tobacco |
| LAir Liquide SA |
Japan Tobacco and LAir Liquide Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Japan Tobacco and LAir Liquide
The main advantage of trading using opposite Japan Tobacco and LAir Liquide positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Japan Tobacco position performs unexpectedly, LAir Liquide 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 LAir Liquide will offset losses from the drop in LAir Liquide's long position.| Japan Tobacco vs. TEXAS ROADHOUSE | Japan Tobacco vs. COPLAND ROAD CAPITAL | Japan Tobacco vs. QUEEN S ROAD | Japan Tobacco vs. Kaufman Broad SA |
| LAir Liquide vs. Apple Inc | LAir Liquide vs. Apple Inc | LAir Liquide vs. Apple Inc | LAir Liquide vs. Apple Inc |
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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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