Correlation Between Japan Tobacco and OCCIDENTAL

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

Diversification Opportunities for Japan Tobacco and OCCIDENTAL

0.82

Correlation Coefficient

Japan Tobacco  OCCIDENTAL

Very poor diversification

The 3 months correlation between Japan and OCCIDENTAL is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Japan Tobacco ADR and OCCIDENTAL PETE P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OCCIDENTAL 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 OCCIDENTAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OCCIDENTAL PETE P has no effect on the direction of Japan Tobacco i.e., Japan Tobacco and OCCIDENTAL go up and down completely randomly.

Pair Corralation between Japan Tobacco and OCCIDENTAL

Assuming the 90 days horizon Japan Tobacco ADR is expected to under-perform the OCCIDENTAL. But the pink sheet apears to be less risky and, when comparing its historical volatility, Japan Tobacco ADR is 1.29 times less risky than OCCIDENTAL. The pink sheet trades about -0.08 of its potential returns per unit of risk. The OCCIDENTAL PETE P is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  7,671  in OCCIDENTAL PETE P on September 15, 2024 and sell it today you would lose (304.00) from holding OCCIDENTAL PETE P or give up 3.96% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	81.25%
Values	Daily Returns

Japan Tobacco ADR  vs.  OCCIDENTAL PETE P

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 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.

OCCIDENTAL PETE P

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days OCCIDENTAL PETE P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, OCCIDENTAL is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Japan Tobacco and OCCIDENTAL

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

The idea behind Japan Tobacco ADR and OCCIDENTAL 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.