Correlation Between Japan Tobacco and Alaska Air

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

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

Diversification Opportunities for Japan Tobacco and Alaska Air

0.07

Correlation Coefficient

Japan Tobacco  Alaska Air

Significant diversification

The 3 months correlation between Japan and Alaska is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Japan Tobacco and Alaska Air Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alaska Air Group 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 Alaska Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alaska Air Group has no effect on the direction of Japan Tobacco i.e., Japan Tobacco and Alaska Air go up and down completely randomly.

Pair Corralation between Japan Tobacco and Alaska Air

Assuming the 90 days horizon Japan Tobacco is expected to generate 0.58 times more return on investment than Alaska Air. However, Japan Tobacco is 1.73 times less risky than Alaska Air. It trades about 0.0 of its potential returns per unit of risk. Alaska Air Group is currently generating about -0.18 per unit of risk. If you would invest  2,438  in Japan Tobacco on December 21, 2024 and sell it today you would lose (11.00) from holding Japan Tobacco or give up 0.45% 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.  Alaska Air Group

Japan Tobacco

Risk-Adjusted Performance

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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Alaska Air Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alaska Air Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Japan Tobacco and Alaska Air

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

The idea behind Japan Tobacco and Alaska Air Group 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.