Correlation Between Addus HomeCare and Japan Tobacco

Can any of the company-specific risk be diversified away by investing in both Addus HomeCare 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 Addus HomeCare and Japan Tobacco into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Addus HomeCare and Japan Tobacco, you can compare the effects of market volatilities on Addus HomeCare 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 Addus HomeCare with a short position of Japan Tobacco. Check out your portfolio center. Please also check ongoing floating volatility patterns of Addus HomeCare and Japan Tobacco.

Diversification Opportunities for Addus HomeCare and Japan Tobacco

-0.23

Correlation Coefficient

Addus HomeCare  Japan Tobacco

Very good diversification

The 3 months correlation between Addus and Japan is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Addus HomeCare and Japan Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Tobacco and Addus HomeCare 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 Addus HomeCare 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 Addus HomeCare i.e., Addus HomeCare and Japan Tobacco go up and down completely randomly.

Pair Corralation between Addus HomeCare and Japan Tobacco

Assuming the 90 days horizon Addus HomeCare is expected to generate 1.45 times more return on investment than Japan Tobacco. However, Addus HomeCare is 1.45 times more volatile than Japan Tobacco. It trades about 0.07 of its potential returns per unit of risk. Japan Tobacco is currently generating about 0.05 per unit of risk. If you would invest  7,750  in Addus HomeCare on October 4, 2024 and sell it today you would earn a total of  4,250  from holding Addus HomeCare or generate 54.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Addus HomeCare  vs.  Japan Tobacco

Addus HomeCare

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Addus HomeCare are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Addus HomeCare may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Japan Tobacco

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Japan Tobacco has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Addus HomeCare and Japan Tobacco

The main advantage of trading using opposite Addus HomeCare and Japan Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Addus HomeCare 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 Addus HomeCare 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.

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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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.