Correlation Between Japan Tobacco and IPG Photonics

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

Diversification Opportunities for Japan Tobacco and IPG Photonics

-0.11

Correlation Coefficient

Japan Tobacco  IPG Photonics

Good diversification

The 3 months correlation between Japan and IPG is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Japan Tobacco ADR and IPG Photonics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IPG Photonics 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 IPG Photonics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IPG Photonics has no effect on the direction of Japan Tobacco i.e., Japan Tobacco and IPG Photonics go up and down completely randomly.

Pair Corralation between Japan Tobacco and IPG Photonics

Assuming the 90 days horizon Japan Tobacco ADR is expected to generate 0.51 times more return on investment than IPG Photonics. However, Japan Tobacco ADR is 1.97 times less risky than IPG Photonics. It trades about 0.05 of its potential returns per unit of risk. IPG Photonics is currently generating about -0.03 per unit of risk. If you would invest  1,019  in Japan Tobacco ADR on October 5, 2024 and sell it today you would earn a total of  261.00  from holding Japan Tobacco ADR or generate 25.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.78%
Values	Daily Returns

Japan Tobacco ADR  vs.  IPG Photonics

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.

IPG Photonics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IPG Photonics has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, IPG Photonics is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Japan Tobacco and IPG Photonics

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

The idea behind Japan Tobacco ADR and IPG Photonics 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.