Correlation Between JAPAN TOBACCO and Sumitomo Chemical
Can any of the company-specific risk be diversified away by investing in both JAPAN TOBACCO and Sumitomo Chemical 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 Sumitomo Chemical 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 Sumitomo Chemical, you can compare the effects of market volatilities on JAPAN TOBACCO and Sumitomo Chemical 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 Sumitomo Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of JAPAN TOBACCO and Sumitomo Chemical.
Diversification Opportunities for JAPAN TOBACCO and Sumitomo Chemical
0.29 | Correlation Coefficient |
Modest diversification
The 3 months correlation between JAPAN and Sumitomo is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding JAPAN TOBACCO UNSPADR12 and Sumitomo Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Chemical 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 Sumitomo Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo Chemical has no effect on the direction of JAPAN TOBACCO i.e., JAPAN TOBACCO and Sumitomo Chemical go up and down completely randomly.
Pair Corralation between JAPAN TOBACCO and Sumitomo Chemical
Assuming the 90 days trading horizon JAPAN TOBACCO UNSPADR12 is expected to generate 0.62 times more return on investment than Sumitomo Chemical. However, JAPAN TOBACCO UNSPADR12 is 1.6 times less risky than Sumitomo Chemical. It trades about 0.05 of its potential returns per unit of risk. Sumitomo Chemical is currently generating about -0.01 per unit of risk. If you would invest 836.00 in JAPAN TOBACCO UNSPADR12 on December 13, 2024 and sell it today you would earn a total of 324.00 from holding JAPAN TOBACCO UNSPADR12 or generate 38.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.0% |
| Values | Daily Returns |
JAPAN TOBACCO UNSPADR12 vs. Sumitomo Chemical
Performance |
| Timeline |
| JAPAN TOBACCO UNSPADR12 |
| Sumitomo Chemical |
JAPAN TOBACCO and Sumitomo Chemical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with JAPAN TOBACCO and Sumitomo Chemical
The main advantage of trading using opposite JAPAN TOBACCO and Sumitomo Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if JAPAN TOBACCO position performs unexpectedly, Sumitomo Chemical 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 Sumitomo Chemical will offset losses from the drop in Sumitomo Chemical's long position.| JAPAN TOBACCO vs. DATADOT TECHNOLOGY | ||
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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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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