Correlation Between Japan Tobacco and The9

Can any of the company-specific risk be diversified away by investing in both Japan Tobacco and The9 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 The9 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 The9 Ltd ADR, you can compare the effects of market volatilities on Japan Tobacco and The9 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 The9. Check out your portfolio center. Please also check ongoing floating volatility patterns of Japan Tobacco and The9.

Diversification Opportunities for Japan Tobacco and The9

-0.62

Correlation Coefficient

Japan Tobacco  The9

Excellent diversification

The 3 months correlation between Japan and The9 is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Japan Tobacco ADR and The9 Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The9 Ltd ADR 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 The9. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The9 Ltd ADR has no effect on the direction of Japan Tobacco i.e., Japan Tobacco and The9 go up and down completely randomly.

Pair Corralation between Japan Tobacco and The9

Assuming the 90 days horizon Japan Tobacco ADR is expected to under-perform the The9. But the pink sheet apears to be less risky and, when comparing its historical volatility, Japan Tobacco ADR is 4.56 times less risky than The9. The pink sheet trades about -0.01 of its potential returns per unit of risk. The The9 Ltd ADR is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  690.00  in The9 Ltd ADR on September 3, 2024 and sell it today you would earn a total of  785.00  from holding The9 Ltd ADR or generate 113.77% return on investment over 90 days.

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

Japan Tobacco ADR  vs.  The9 Ltd ADR

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 fairly strong basic indicators, Japan Tobacco is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

The9 Ltd ADR

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The9 Ltd ADR are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, The9 showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Japan Tobacco and The9

The main advantage of trading using opposite Japan Tobacco and The9 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Japan Tobacco position performs unexpectedly, The9 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 The9 will offset losses from the drop in The9's long position.

The idea behind Japan Tobacco ADR and The9 Ltd ADR 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.