Correlation Between JAPAN TOBACCO and Zhongsheng Group

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

By analyzing existing cross correlation between JAPAN TOBACCO UNSPADR12 and Zhongsheng Group Holdings, you can compare the effects of market volatilities on JAPAN TOBACCO and Zhongsheng Group 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 Zhongsheng Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of JAPAN TOBACCO and Zhongsheng Group.

Diversification Opportunities for JAPAN TOBACCO and Zhongsheng Group

0.21

Correlation Coefficient

JAPAN TOBACCO  Zhongsheng Group

Modest diversification

The 3 months correlation between JAPAN and Zhongsheng is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding JAPAN TOBACCO UNSPADR12 and Zhongsheng Group Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhongsheng Group Holdings 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 UNSPADR12 are associated (or correlated) with Zhongsheng Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhongsheng Group Holdings has no effect on the direction of JAPAN TOBACCO i.e., JAPAN TOBACCO and Zhongsheng Group go up and down completely randomly.

Pair Corralation between JAPAN TOBACCO and Zhongsheng Group

Assuming the 90 days trading horizon JAPAN TOBACCO UNSPADR12 is expected to generate 0.33 times more return on investment than Zhongsheng Group. However, JAPAN TOBACCO UNSPADR12 is 3.07 times less risky than Zhongsheng Group. It trades about -0.11 of its potential returns per unit of risk. Zhongsheng Group Holdings is currently generating about -0.21 per unit of risk. If you would invest  1,270  in JAPAN TOBACCO UNSPADR12 on September 22, 2024 and sell it today you would lose (30.00) from holding JAPAN TOBACCO UNSPADR12 or give up 2.36% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.65%
Values	Daily Returns

JAPAN TOBACCO UNSPADR12  vs.  Zhongsheng Group Holdings

JAPAN TOBACCO UNSPADR12

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in JAPAN TOBACCO UNSPADR12 are ranked lower than 1 (%) 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 latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Zhongsheng Group Holdings

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Zhongsheng Group Holdings are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Zhongsheng Group reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with JAPAN TOBACCO and Zhongsheng Group

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

The idea behind JAPAN TOBACCO UNSPADR12 and Zhongsheng Group Holdings 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.