Correlation Between Zurich Insurance and Japan Tobacco

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Can any of the company-specific risk be diversified away by investing in both Zurich Insurance 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 Zurich Insurance and Japan Tobacco into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Zurich Insurance Group and Japan Tobacco, you can compare the effects of market volatilities on Zurich Insurance 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 Zurich Insurance with a short position of Japan Tobacco. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zurich Insurance and Japan Tobacco.

Diversification Opportunities for Zurich Insurance and Japan Tobacco

0.31
  Correlation Coefficient

Weak diversification

The 3 months correlation between Zurich and Japan is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Zurich Insurance Group and Japan Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Tobacco and Zurich Insurance 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 Zurich Insurance Group 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 has no effect on the direction of Zurich Insurance i.e., Zurich Insurance and Japan Tobacco go up and down completely randomly.

Pair Corralation between Zurich Insurance and Japan Tobacco

Assuming the 90 days trading horizon Zurich Insurance Group is expected to generate 0.97 times more return on investment than Japan Tobacco. However, Zurich Insurance Group is 1.03 times less risky than Japan Tobacco. It trades about 0.05 of its potential returns per unit of risk. Japan Tobacco is currently generating about 0.04 per unit of risk. If you would invest  1,994  in Zurich Insurance Group on September 19, 2024 and sell it today you would earn a total of  906.00  from holding Zurich Insurance Group or generate 45.44% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Zurich Insurance Group  vs.  Japan Tobacco

 Performance 
       Timeline  
Zurich Insurance 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Zurich Insurance Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward indicators, Zurich Insurance may actually be approaching a critical reversion point that can send shares even higher in January 2025.
Japan Tobacco 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Japan Tobacco has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Japan Tobacco is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Zurich Insurance and Japan Tobacco Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Zurich Insurance and Japan Tobacco

The main advantage of trading using opposite Zurich Insurance and Japan Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Zurich Insurance 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.
The idea behind Zurich Insurance Group and Japan Tobacco pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.

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