Correlation Between Jacobs Solutions and Japan Tobacco

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

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

Diversification Opportunities for Jacobs Solutions and Japan Tobacco

-0.44

Correlation Coefficient

Jacobs Solutions  Japan Tobacco

Very good diversification

The 3 months correlation between Jacobs and Japan is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Jacobs Solutions 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 Jacobs Solutions 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 Jacobs Solutions 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 Jacobs Solutions i.e., Jacobs Solutions and Japan Tobacco go up and down completely randomly.

Pair Corralation between Jacobs Solutions and Japan Tobacco

Taking into account the 90-day investment horizon Jacobs Solutions is expected to under-perform the Japan Tobacco. In addition to that, Jacobs Solutions is 1.11 times more volatile than Japan Tobacco ADR. It trades about -0.11 of its total potential returns per unit of risk. Japan Tobacco ADR is currently generating about 0.06 per unit of volatility. If you would invest  1,320  in Japan Tobacco ADR on December 27, 2024 and sell it today you would earn a total of  50.00  from holding Japan Tobacco ADR or generate 3.79% return on investment over 90 days.

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

Jacobs Solutions  vs.  Japan Tobacco ADR

Jacobs Solutions

Risk-Adjusted Performance

Very Weak

Over the last 90 days Jacobs Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's forward-looking indicators remain steady and the new chaos on Wall Street may also be a sign of medium-term gains for the company stakeholders.

Japan Tobacco ADR

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Japan Tobacco ADR are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Japan Tobacco is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Jacobs Solutions and Japan Tobacco

The main advantage of trading using opposite Jacobs Solutions and Japan Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Jacobs Solutions 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 Jacobs Solutions and Japan Tobacco ADR 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.