Correlation Between Japan Tobacco and INTERSHOP Communications

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

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

Diversification Opportunities for Japan Tobacco and INTERSHOP Communications

-0.36

Correlation Coefficient

Japan Tobacco  INTERSHOP Communications

Very good diversification

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

Pair Corralation between Japan Tobacco and INTERSHOP Communications

Assuming the 90 days horizon Japan Tobacco is expected to under-perform the INTERSHOP Communications. But the stock apears to be less risky and, when comparing its historical volatility, Japan Tobacco is 3.13 times less risky than INTERSHOP Communications. The stock trades about -0.58 of its potential returns per unit of risk. The INTERSHOP Communications Aktiengesellschaft is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  183.00  in INTERSHOP Communications Aktiengesellschaft on October 5, 2024 and sell it today you would lose (8.00) from holding INTERSHOP Communications Aktiengesellschaft or give up 4.37% of portfolio value over 90 days.

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

Japan Tobacco  vs.  INTERSHOP Communications Aktie

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 latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

INTERSHOP Communications

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days INTERSHOP Communications Aktiengesellschaft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, INTERSHOP Communications is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Japan Tobacco and INTERSHOP Communications

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

The idea behind Japan Tobacco and INTERSHOP Communications Aktiengesellschaft 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.