Correlation Between Universal and Japan Tobacco
Can any of the company-specific risk be diversified away by investing in both Universal and Japan Tobacco 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 Universal and Japan Tobacco into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Universal and Japan Tobacco ADR, you can compare the effects of market volatilities on Universal and Japan Tobacco 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 Universal with a short position of Japan Tobacco. Check out your portfolio center. Please also check ongoing floating volatility patterns of Universal and Japan Tobacco.
Diversification Opportunities for Universal and Japan Tobacco
-0.28 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Universal and Japan is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Universal and Japan Tobacco ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Tobacco ADR and Universal 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 Universal are associated (or correlated) with Japan Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Japan Tobacco ADR has no effect on the direction of Universal i.e., Universal and Japan Tobacco go up and down completely randomly.
Pair Corralation between Universal and Japan Tobacco
Considering the 90-day investment horizon Universal is expected to generate 1.22 times more return on investment than Japan Tobacco. However, Universal is 1.22 times more volatile than Japan Tobacco ADR. It trades about 0.45 of its potential returns per unit of risk. Japan Tobacco ADR is currently generating about 0.07 per unit of risk. If you would invest 5,005 in Universal on August 27, 2024 and sell it today you would earn a total of 704.00 from holding Universal or generate 14.07% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Universal vs. Japan Tobacco ADR
Performance |
| Timeline |
| Universal |
| Japan Tobacco ADR |
Universal and Japan Tobacco Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Universal and Japan Tobacco
The main advantage of trading using opposite Universal and Japan Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Universal position performs unexpectedly, Japan Tobacco 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 Japan Tobacco will offset losses from the drop in Japan Tobacco's long position.| Universal vs. Imperial Brands PLC | Universal vs. Japan Tobacco ADR | Universal vs. Philip Morris International | Universal vs. Turning Point Brands |
| Japan Tobacco vs. British American Tobacco | Japan Tobacco vs. Imperial Brands PLC | Japan Tobacco vs. RLX Technology | Japan Tobacco vs. British American Tobacco |
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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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