Correlation Between Japan Tobacco and Papaya Growth

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

Diversification Opportunities for Japan Tobacco and Papaya Growth

0.07

Correlation Coefficient

Japan Tobacco  Papaya Growth

Significant diversification

The 3 months correlation between Japan and Papaya is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Japan Tobacco ADR and Papaya Growth Opportunity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Papaya Growth Opportunity 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 Papaya Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Papaya Growth Opportunity has no effect on the direction of Japan Tobacco i.e., Japan Tobacco and Papaya Growth go up and down completely randomly.

Pair Corralation between Japan Tobacco and Papaya Growth

Assuming the 90 days horizon Japan Tobacco ADR is expected to generate 0.93 times more return on investment than Papaya Growth. However, Japan Tobacco ADR is 1.08 times less risky than Papaya Growth. It trades about 0.06 of its potential returns per unit of risk. Papaya Growth Opportunity is currently generating about 0.02 per unit of risk. If you would invest  1,036  in Japan Tobacco ADR on September 4, 2024 and sell it today you would earn a total of  372.00  from holding Japan Tobacco ADR or generate 35.91% return on investment over 90 days.

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

Japan Tobacco ADR  vs.  Papaya Growth Opportunity

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.

Papaya Growth Opportunity

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Papaya Growth Opportunity are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Papaya Growth is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Japan Tobacco and Papaya Growth

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

The idea behind Japan Tobacco ADR and Papaya Growth Opportunity 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.