Correlation Between Japan Tobacco and Flight Centre
Can any of the company-specific risk be diversified away by investing in both Japan Tobacco and Flight Centre 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 Flight Centre into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Japan Tobacco and Flight Centre Travel, you can compare the effects of market volatilities on Japan Tobacco and Flight Centre 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 Flight Centre. Check out your portfolio center. Please also check ongoing floating volatility patterns of Japan Tobacco and Flight Centre.
Diversification Opportunities for Japan Tobacco and Flight Centre
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Japan and Flight is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Japan Tobacco and Flight Centre Travel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Flight Centre Travel 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 Flight Centre. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Flight Centre Travel has no effect on the direction of Japan Tobacco i.e., Japan Tobacco and Flight Centre go up and down completely randomly.
Pair Corralation between Japan Tobacco and Flight Centre
Assuming the 90 days horizon Japan Tobacco is expected to generate 2.14 times less return on investment than Flight Centre. But when comparing it to its historical volatility, Japan Tobacco is 1.08 times less risky than Flight Centre. It trades about 0.18 of its potential returns per unit of risk. Flight Centre Travel is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest 935.00 in Flight Centre Travel on September 4, 2024 and sell it today you would earn a total of 125.00 from holding Flight Centre Travel or generate 13.37% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Japan Tobacco vs. Flight Centre Travel
Performance |
| Timeline |
| Japan Tobacco |
| Flight Centre Travel |
Japan Tobacco and Flight Centre Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Japan Tobacco and Flight Centre
The main advantage of trading using opposite Japan Tobacco and Flight Centre positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Japan Tobacco position performs unexpectedly, Flight Centre 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 Flight Centre will offset losses from the drop in Flight Centre's long position.| Japan Tobacco vs. British American Tobacco | Japan Tobacco vs. JAPAN TOBACCO UNSPADR12 | Japan Tobacco vs. Imperial Brands PLC |
| Flight Centre vs. MOLSON RS BEVERAGE | Flight Centre vs. BOSTON BEER A | Flight Centre vs. THAI BEVERAGE | Flight Centre vs. United Breweries Co |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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