Correlation Between Japan Tobacco and Ark Restaurants

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

By analyzing existing cross correlation between Japan Tobacco ADR and Ark Restaurants Corp, you can compare the effects of market volatilities on Japan Tobacco and Ark Restaurants 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 Ark Restaurants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Japan Tobacco and Ark Restaurants.

Diversification Opportunities for Japan Tobacco and Ark Restaurants

0.3

Correlation Coefficient

Japan Tobacco  Ark Restaurants

Weak diversification

The 3 months correlation between Japan and Ark is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Japan Tobacco ADR and Ark Restaurants Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ark Restaurants Corp 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 ADR are associated (or correlated) with Ark Restaurants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ark Restaurants Corp has no effect on the direction of Japan Tobacco i.e., Japan Tobacco and Ark Restaurants go up and down completely randomly.

Pair Corralation between Japan Tobacco and Ark Restaurants

Assuming the 90 days horizon Japan Tobacco ADR is expected to generate 0.34 times more return on investment than Ark Restaurants. However, Japan Tobacco ADR is 2.93 times less risky than Ark Restaurants. It trades about -0.02 of its potential returns per unit of risk. Ark Restaurants Corp is currently generating about -0.02 per unit of risk. If you would invest  1,373  in Japan Tobacco ADR on September 24, 2024 and sell it today you would lose (53.00) from holding Japan Tobacco ADR or give up 3.86% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.21%
Values	Daily Returns

Japan Tobacco ADR  vs.  Ark Restaurants Corp

Japan Tobacco ADR

Risk-Adjusted Performance

0 of 100

Very Weak

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

Ark Restaurants Corp

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ark Restaurants Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable forward-looking signals, Ark Restaurants is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Japan Tobacco and Ark Restaurants

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

The idea behind Japan Tobacco ADR and Ark Restaurants Corp 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.