Correlation Between Japan Tobacco and National Beverage

Can any of the company-specific risk be diversified away by investing in both Japan Tobacco and National Beverage 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 National Beverage into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Japan Tobacco and National Beverage Corp, you can compare the effects of market volatilities on Japan Tobacco and National Beverage 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 National Beverage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Japan Tobacco and National Beverage.

Diversification Opportunities for Japan Tobacco and National Beverage

0.1

Correlation Coefficient

Japan Tobacco  National Beverage

Average diversification

The 3 months correlation between Japan and National is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Japan Tobacco and National Beverage Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Beverage Corp 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 are associated (or correlated) with National Beverage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Beverage Corp has no effect on the direction of Japan Tobacco i.e., Japan Tobacco and National Beverage go up and down completely randomly.

Pair Corralation between Japan Tobacco and National Beverage

Assuming the 90 days horizon Japan Tobacco is expected to generate 0.61 times more return on investment than National Beverage. However, Japan Tobacco is 1.64 times less risky than National Beverage. It trades about -0.02 of its potential returns per unit of risk. National Beverage Corp is currently generating about -0.03 per unit of risk. If you would invest  2,557  in Japan Tobacco on September 22, 2024 and sell it today you would lose (18.00) from holding Japan Tobacco or give up 0.7% of portfolio value over 90 days.

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

Japan Tobacco  vs.  National Beverage Corp

Japan Tobacco

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Japan Tobacco has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Japan Tobacco is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

National Beverage Corp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in National Beverage Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, National Beverage may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Japan Tobacco and National Beverage

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

The idea behind Japan Tobacco and National Beverage Corp 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.