Correlation Between Japan Tobacco and Radcom

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

Diversification Opportunities for Japan Tobacco and Radcom

-0.6

Correlation Coefficient

Japan Tobacco  Radcom

Excellent diversification

The 3 months correlation between Japan and Radcom is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Japan Tobacco ADR and Radcom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Radcom 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 Radcom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Radcom has no effect on the direction of Japan Tobacco i.e., Japan Tobacco and Radcom go up and down completely randomly.

Pair Corralation between Japan Tobacco and Radcom

Assuming the 90 days horizon Japan Tobacco ADR is expected to under-perform the Radcom. But the pink sheet apears to be less risky and, when comparing its historical volatility, Japan Tobacco ADR is 3.49 times less risky than Radcom. The pink sheet trades about -0.11 of its potential returns per unit of risk. The Radcom is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,010  in Radcom on October 25, 2024 and sell it today you would earn a total of  325.00  from holding Radcom or generate 32.18% 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.  Radcom

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.

Radcom

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Radcom are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Radcom displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Japan Tobacco and Radcom

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

The idea behind Japan Tobacco ADR and Radcom 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.