Correlation Between Japan Tobacco and Universal

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

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

Diversification Opportunities for Japan Tobacco and Universal

-0.08

Correlation Coefficient

Japan Tobacco  Universal

Good diversification

The 3 months correlation between Japan and Universal is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Japan Tobacco and Universal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal and Japan Tobacco 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 Japan Tobacco are associated (or correlated) with Universal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal has no effect on the direction of Japan Tobacco i.e., Japan Tobacco and Universal go up and down completely randomly.

Pair Corralation between Japan Tobacco and Universal

Assuming the 90 days horizon Japan Tobacco is expected to generate 2.06 times more return on investment than Universal. However, Japan Tobacco is 2.06 times more volatile than Universal. It trades about 0.13 of its potential returns per unit of risk. Universal is currently generating about 0.25 per unit of risk. If you would invest  2,600  in Japan Tobacco on September 5, 2024 and sell it today you would earn a total of  209.00  from holding Japan Tobacco or generate 8.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Japan Tobacco  vs.  Universal

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 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.

Universal

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Universal are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Universal may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Japan Tobacco and Universal

The main advantage of trading using opposite Japan Tobacco and Universal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Japan Tobacco position performs unexpectedly, Universal 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 Universal will offset losses from the drop in Universal's long position.

The idea behind Japan Tobacco and Universal 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.