Correlation Between Japan Tobacco and Deere

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

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

Diversification Opportunities for Japan Tobacco and Deere

0.36

Correlation Coefficient

Japan Tobacco  Deere

Weak diversification

The 3 months correlation between Japan and Deere is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Japan Tobacco and Deere Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deere Company 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 Deere. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deere Company has no effect on the direction of Japan Tobacco i.e., Japan Tobacco and Deere go up and down completely randomly.

Pair Corralation between Japan Tobacco and Deere

Assuming the 90 days horizon Japan Tobacco is expected to generate 1.03 times more return on investment than Deere. However, Japan Tobacco is 1.03 times more volatile than Deere Company. It trades about 0.04 of its potential returns per unit of risk. Deere Company is currently generating about 0.02 per unit of risk. If you would invest  1,980  in Japan Tobacco on September 14, 2024 and sell it today you would earn a total of  620.00  from holding Japan Tobacco or generate 31.31% return on investment over 90 days.

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

Japan Tobacco  vs.  Deere Company

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.

Deere Company

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Deere Company are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Deere reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Japan Tobacco and Deere

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

The idea behind Japan Tobacco and Deere Company 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.