Correlation Between Japan Tobacco and Bank of America
Can any of the company-specific risk be diversified away by investing in both Japan Tobacco and Bank of America 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 Bank of America into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Japan Tobacco and Verizon Communications, you can compare the effects of market volatilities on Japan Tobacco and Bank of America 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 Bank of America. Check out your portfolio center. Please also check ongoing floating volatility patterns of Japan Tobacco and Bank of America.
Diversification Opportunities for Japan Tobacco and Bank of America
0.58 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Japan and Bank is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Japan Tobacco and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications 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 Bank of America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of Japan Tobacco i.e., Japan Tobacco and Bank of America go up and down completely randomly.
Pair Corralation between Japan Tobacco and Bank of America
Assuming the 90 days horizon Japan Tobacco is expected to generate 1.95 times less return on investment than Bank of America. In addition to that, Japan Tobacco is 1.18 times more volatile than Verizon Communications. It trades about 0.03 of its total potential returns per unit of risk. Verizon Communications is currently generating about 0.08 per unit of volatility. If you would invest 3,196 in Verizon Communications on September 14, 2024 and sell it today you would earn a total of 809.00 from holding Verizon Communications or generate 25.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.6% |
| Values | Daily Returns |
Japan Tobacco vs. Verizon Communications
Performance |
| Timeline |
| Japan Tobacco |
| Verizon Communications |
Japan Tobacco and Bank of America Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Japan Tobacco and Bank of America
The main advantage of trading using opposite Japan Tobacco and Bank of America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Japan Tobacco position performs unexpectedly, Bank of America 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 Bank of America will offset losses from the drop in Bank of America's long position.| Japan Tobacco vs. PARKEN Sport Entertainment | Japan Tobacco vs. Commercial Vehicle Group | Japan Tobacco vs. Motorcar Parts of | Japan Tobacco vs. Carsales |
| Bank of America vs. Commercial Vehicle Group | Bank of America vs. GameStop Corp | Bank of America vs. COMMERCIAL VEHICLE | Bank of America vs. Penn National Gaming |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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