Correlation Between Japan Tobacco and Scandinavian Tobacco

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

Diversification Opportunities for Japan Tobacco and Scandinavian Tobacco

0.57

Correlation Coefficient

Japan Tobacco  Scandinavian Tobacco

Very weak diversification

The 3 months correlation between Japan and Scandinavian is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Japan Tobacco ADR and Scandinavian Tobacco Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scandinavian Tobacco 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 Scandinavian Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scandinavian Tobacco has no effect on the direction of Japan Tobacco i.e., Japan Tobacco and Scandinavian Tobacco go up and down completely randomly.

Pair Corralation between Japan Tobacco and Scandinavian Tobacco

Assuming the 90 days horizon Japan Tobacco ADR is expected to under-perform the Scandinavian Tobacco. In addition to that, Japan Tobacco is 1.56 times more volatile than Scandinavian Tobacco Group. It trades about -0.39 of its total potential returns per unit of risk. Scandinavian Tobacco Group is currently generating about -0.22 per unit of volatility. If you would invest  1,386  in Scandinavian Tobacco Group on October 9, 2024 and sell it today you would lose (41.00) from holding Scandinavian Tobacco Group or give up 2.96% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.0%
Values	Daily Returns

Japan Tobacco ADR  vs.  Scandinavian Tobacco Group

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.

Scandinavian Tobacco

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Scandinavian Tobacco Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Japan Tobacco and Scandinavian Tobacco

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

The idea behind Japan Tobacco ADR and Scandinavian Tobacco Group 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.