Correlation Between Japan Tobacco and ALLTEL

Can any of the company-specific risk be diversified away by investing in both Japan Tobacco and ALLTEL 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 ALLTEL 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 ALLTEL P 68, you can compare the effects of market volatilities on Japan Tobacco and ALLTEL 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 ALLTEL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Japan Tobacco and ALLTEL.

Diversification Opportunities for Japan Tobacco and ALLTEL

0.05

Correlation Coefficient

Japan Tobacco  ALLTEL

Significant diversification

The 3 months correlation between Japan and ALLTEL is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Japan Tobacco ADR and ALLTEL P 68 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALLTEL P 68 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 ALLTEL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALLTEL P 68 has no effect on the direction of Japan Tobacco i.e., Japan Tobacco and ALLTEL go up and down completely randomly.

Pair Corralation between Japan Tobacco and ALLTEL

Assuming the 90 days horizon Japan Tobacco is expected to generate 1.55 times less return on investment than ALLTEL. In addition to that, Japan Tobacco is 1.01 times more volatile than ALLTEL P 68. It trades about 0.05 of its total potential returns per unit of risk. ALLTEL P 68 is currently generating about 0.08 per unit of volatility. If you would invest  10,361  in ALLTEL P 68 on December 23, 2024 and sell it today you would earn a total of  162.00  from holding ALLTEL P 68 or generate 1.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	31.15%
Values	Daily Returns

Japan Tobacco ADR  vs.  ALLTEL P 68

Japan Tobacco ADR

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Japan Tobacco ADR are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. 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.

ALLTEL P 68

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ALLTEL P 68 are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, ALLTEL is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Japan Tobacco and ALLTEL

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

The idea behind Japan Tobacco ADR and ALLTEL P 68 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.