Correlation Between Japan Tobacco and Pentair Plc

Can any of the company-specific risk be diversified away by investing in both Japan Tobacco and Pentair 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 Pentair 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 Pentair plc, you can compare the effects of market volatilities on Japan Tobacco and Pentair 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 Pentair Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Japan Tobacco and Pentair Plc.

Diversification Opportunities for Japan Tobacco and Pentair Plc

0.47

Correlation Coefficient

Japan Tobacco  Pentair Plc

Very weak diversification

The 3 months correlation between Japan and Pentair is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Japan Tobacco and Pentair plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pentair 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 Pentair Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pentair plc has no effect on the direction of Japan Tobacco i.e., Japan Tobacco and Pentair Plc go up and down completely randomly.

Pair Corralation between Japan Tobacco and Pentair Plc

Assuming the 90 days horizon Japan Tobacco is expected to generate 0.98 times more return on investment than Pentair Plc. However, Japan Tobacco is 1.02 times less risky than Pentair Plc. It trades about -0.01 of its potential returns per unit of risk. Pentair plc is currently generating about -0.22 per unit of risk. If you would invest  2,461  in Japan Tobacco on December 20, 2024 and sell it today you would lose (34.00) from holding Japan Tobacco or give up 1.38% of portfolio value over 90 days.

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

Japan Tobacco  vs.  Pentair plc

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

Pentair plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pentair plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Japan Tobacco and Pentair Plc

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

The idea behind Japan Tobacco and Pentair 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.