Correlation Between Japan Tobacco and MARATHON

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

Diversification Opportunities for Japan Tobacco and MARATHON

-0.13

Correlation Coefficient

Japan Tobacco  MARATHON

Good diversification

The 3 months correlation between Japan and MARATHON is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Japan Tobacco ADR and MARATHON PETE P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MARATHON PETE P 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 MARATHON. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MARATHON PETE P has no effect on the direction of Japan Tobacco i.e., Japan Tobacco and MARATHON go up and down completely randomly.

Pair Corralation between Japan Tobacco and MARATHON

Assuming the 90 days horizon Japan Tobacco is expected to generate 1.26 times less return on investment than MARATHON. In addition to that, Japan Tobacco is 1.18 times more volatile than MARATHON PETE P. It trades about 0.05 of its total potential returns per unit of risk. MARATHON PETE P is currently generating about 0.08 per unit of volatility. If you would invest  10,422  in MARATHON PETE P on December 23, 2024 and sell it today you would earn a total of  431.00  from holding MARATHON PETE P or generate 4.14% 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.  MARATHON PETE P

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.

MARATHON PETE P

Risk-Adjusted Performance

Modest

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

Pair Trading with Japan Tobacco and MARATHON

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

The idea behind Japan Tobacco ADR and MARATHON PETE P 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.