Correlation Between Japan Tobacco and XLMedia PLC

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

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

Diversification Opportunities for Japan Tobacco and XLMedia PLC

-0.11

Correlation Coefficient

Japan Tobacco  XLMedia PLC

Good diversification

The 3 months correlation between Japan and XLMedia is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Japan Tobacco and XLMedia PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XLMedia PLC 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 XLMedia PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XLMedia PLC has no effect on the direction of Japan Tobacco i.e., Japan Tobacco and XLMedia PLC go up and down completely randomly.

Pair Corralation between Japan Tobacco and XLMedia PLC

Assuming the 90 days horizon Japan Tobacco is expected to generate 2.84 times less return on investment than XLMedia PLC. But when comparing it to its historical volatility, Japan Tobacco is 2.91 times less risky than XLMedia PLC. It trades about 0.06 of its potential returns per unit of risk. XLMedia PLC is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  9.90  in XLMedia PLC on December 29, 2024 and sell it today you would earn a total of  1.10  from holding XLMedia PLC or generate 11.11% return on investment over 90 days.

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

Japan Tobacco  vs.  XLMedia PLC

Japan Tobacco

Risk-Adjusted Performance

Insignificant

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

XLMedia PLC

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in XLMedia PLC are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, XLMedia PLC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Japan Tobacco and XLMedia PLC

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

The idea behind Japan Tobacco and XLMedia PLC 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.