Correlation Between JAPAN TOBACCO and American Water
Can any of the company-specific risk be diversified away by investing in both JAPAN TOBACCO and American Water 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 American Water into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between JAPAN TOBACCO UNSPADR12 and American Water Works, you can compare the effects of market volatilities on JAPAN TOBACCO and American Water 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 American Water. Check out your portfolio center. Please also check ongoing floating volatility patterns of JAPAN TOBACCO and American Water.
Diversification Opportunities for JAPAN TOBACCO and American Water
0.42 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between JAPAN and American is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding JAPAN TOBACCO UNSPADR12 and American Water Works in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Water Works 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 UNSPADR12 are associated (or correlated) with American Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Water Works has no effect on the direction of JAPAN TOBACCO i.e., JAPAN TOBACCO and American Water go up and down completely randomly.
Pair Corralation between JAPAN TOBACCO and American Water
Assuming the 90 days trading horizon JAPAN TOBACCO UNSPADR12 is expected to under-perform the American Water. But the stock apears to be less risky and, when comparing its historical volatility, JAPAN TOBACCO UNSPADR12 is 1.06 times less risky than American Water. The stock trades about -0.32 of its potential returns per unit of risk. The American Water Works is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest 12,335 in American Water Works on October 13, 2024 and sell it today you would lose (395.00) from holding American Water Works or give up 3.2% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
JAPAN TOBACCO UNSPADR12 vs. American Water Works
Performance |
| Timeline |
| JAPAN TOBACCO UNSPADR12 |
| American Water Works |
JAPAN TOBACCO and American Water Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with JAPAN TOBACCO and American Water
The main advantage of trading using opposite JAPAN TOBACCO and American Water positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if JAPAN TOBACCO position performs unexpectedly, American Water 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 American Water will offset losses from the drop in American Water's long position.| JAPAN TOBACCO vs. AEON STORES | JAPAN TOBACCO vs. BJs Wholesale Club | JAPAN TOBACCO vs. SIDETRADE EO 1 | JAPAN TOBACCO vs. H2O Retailing |
| American Water vs. MagnaChip Semiconductor Corp | American Water vs. JAPAN TOBACCO UNSPADR12 | American Water vs. SLR Investment Corp | American Water vs. Scottish Mortgage Investment |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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