Correlation Between Japan Tobacco and TKO Group

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

Diversification Opportunities for Japan Tobacco and TKO Group

-0.38

Correlation Coefficient

Japan Tobacco  TKO Group

Very good diversification

The 3 months correlation between Japan and TKO is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Japan Tobacco ADR and TKO Group Holdings, in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TKO Group Holdings, 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 TKO Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TKO Group Holdings, has no effect on the direction of Japan Tobacco i.e., Japan Tobacco and TKO Group go up and down completely randomly.

Pair Corralation between Japan Tobacco and TKO Group

Assuming the 90 days horizon Japan Tobacco ADR is expected to under-perform the TKO Group. But the pink sheet apears to be less risky and, when comparing its historical volatility, Japan Tobacco ADR is 2.0 times less risky than TKO Group. The pink sheet trades about -0.01 of its potential returns per unit of risk. The TKO Group Holdings, is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  14,176  in TKO Group Holdings, on December 18, 2024 and sell it today you would earn a total of  371.00  from holding TKO Group Holdings, or generate 2.62% return on investment over 90 days.

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

Japan Tobacco ADR  vs.  TKO Group Holdings,

Japan Tobacco ADR

Risk-Adjusted Performance

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.

TKO Group Holdings,

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in TKO Group Holdings, are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward-looking signals, TKO Group is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Japan Tobacco and TKO Group

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

The idea behind Japan Tobacco ADR and TKO Group Holdings, 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.