Correlation Between Japan Tobacco and Dine Brands

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

Diversification Opportunities for Japan Tobacco and Dine Brands

0.26

Correlation Coefficient

Japan Tobacco  Dine Brands

Modest diversification

The 3 months correlation between Japan and Dine is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Japan Tobacco ADR and Dine Brands Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dine Brands Global 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 Dine Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dine Brands Global has no effect on the direction of Japan Tobacco i.e., Japan Tobacco and Dine Brands go up and down completely randomly.

Pair Corralation between Japan Tobacco and Dine Brands

Assuming the 90 days horizon Japan Tobacco ADR is expected to generate 0.51 times more return on investment than Dine Brands. However, Japan Tobacco ADR is 1.96 times less risky than Dine Brands. It trades about -0.48 of its potential returns per unit of risk. Dine Brands Global is currently generating about -0.31 per unit of risk. If you would invest  1,374  in Japan Tobacco ADR on October 12, 2024 and sell it today you would lose (138.00) from holding Japan Tobacco ADR or give up 10.04% of portfolio value over 90 days.

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

Japan Tobacco ADR  vs.  Dine Brands Global

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 fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Dine Brands Global

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dine Brands Global has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's forward indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Japan Tobacco and Dine Brands

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

The idea behind Japan Tobacco ADR and Dine Brands Global 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.