Correlation Between Garofalo Health and Japan Tobacco

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

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

Diversification Opportunities for Garofalo Health and Japan Tobacco

0.13

Correlation Coefficient

Garofalo Health  Japan Tobacco

Average diversification

The 3 months correlation between Garofalo and Japan is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Garofalo Health Care and Japan Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Tobacco and Garofalo Health 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 Garofalo Health Care 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 Garofalo Health i.e., Garofalo Health and Japan Tobacco go up and down completely randomly.

Pair Corralation between Garofalo Health and Japan Tobacco

Assuming the 90 days horizon Garofalo Health Care is expected to generate 0.88 times more return on investment than Japan Tobacco. However, Garofalo Health Care is 1.13 times less risky than Japan Tobacco. It trades about -0.02 of its potential returns per unit of risk. Japan Tobacco is currently generating about -0.09 per unit of risk. If you would invest  542.00  in Garofalo Health Care on October 11, 2024 and sell it today you would lose (12.00) from holding Garofalo Health Care or give up 2.21% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Garofalo Health Care  vs.  Japan Tobacco

Garofalo Health Care

Risk-Adjusted Performance

0 of 100

Very Weak

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

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 uncertain 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 Garofalo Health and Japan Tobacco

The main advantage of trading using opposite Garofalo Health and Japan Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Garofalo Health 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 Garofalo Health Care 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.