Correlation Between Japan Tobacco and Cool

Can any of the company-specific risk be diversified away by investing in both Japan Tobacco and Cool 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 Cool 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 Cool Company, you can compare the effects of market volatilities on Japan Tobacco and Cool 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 Cool. Check out your portfolio center. Please also check ongoing floating volatility patterns of Japan Tobacco and Cool.

Diversification Opportunities for Japan Tobacco and Cool

0.49

Correlation Coefficient

Japan Tobacco  Cool

Very weak diversification

The 3 months correlation between Japan and Cool is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Japan Tobacco ADR and Cool Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cool Company 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 Cool. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cool Company has no effect on the direction of Japan Tobacco i.e., Japan Tobacco and Cool go up and down completely randomly.

Pair Corralation between Japan Tobacco and Cool

Assuming the 90 days horizon Japan Tobacco ADR is expected to generate 0.36 times more return on investment than Cool. However, Japan Tobacco ADR is 2.74 times less risky than Cool. It trades about -0.14 of its potential returns per unit of risk. Cool Company is currently generating about -0.18 per unit of risk. If you would invest  1,446  in Japan Tobacco ADR on October 3, 2024 and sell it today you would lose (123.00) from holding Japan Tobacco ADR or give up 8.51% of portfolio value over 90 days.

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

Japan Tobacco ADR  vs.  Cool Company

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 fragile 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.

Cool Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cool Company has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Japan Tobacco and Cool

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

The idea behind Japan Tobacco ADR and Cool Company 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.