Correlation Between JAPAN TOBACCO and Ebro Foods

Can any of the company-specific risk be diversified away by investing in both JAPAN TOBACCO and Ebro Foods 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 Ebro Foods 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 Ebro Foods SA, you can compare the effects of market volatilities on JAPAN TOBACCO and Ebro Foods 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 Ebro Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of JAPAN TOBACCO and Ebro Foods.

Diversification Opportunities for JAPAN TOBACCO and Ebro Foods

-0.4

Correlation Coefficient

JAPAN TOBACCO  Ebro Foods

Very good diversification

The 3 months correlation between JAPAN and Ebro is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding JAPAN TOBACCO UNSPADR12 and Ebro Foods SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ebro Foods SA 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 Ebro Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ebro Foods SA has no effect on the direction of JAPAN TOBACCO i.e., JAPAN TOBACCO and Ebro Foods go up and down completely randomly.

Pair Corralation between JAPAN TOBACCO and Ebro Foods

Assuming the 90 days trading horizon JAPAN TOBACCO UNSPADR12 is expected to under-perform the Ebro Foods. In addition to that, JAPAN TOBACCO is 1.37 times more volatile than Ebro Foods SA. It trades about -0.19 of its total potential returns per unit of risk. Ebro Foods SA is currently generating about -0.11 per unit of volatility. If you would invest  1,602  in Ebro Foods SA on September 25, 2024 and sell it today you would lose (22.00) from holding Ebro Foods SA or give up 1.37% of portfolio value over 90 days.

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

JAPAN TOBACCO UNSPADR12  vs.  Ebro Foods SA

JAPAN TOBACCO UNSPADR12

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JAPAN TOBACCO UNSPADR12 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.

Ebro Foods SA

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ebro Foods SA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Ebro Foods is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with JAPAN TOBACCO and Ebro Foods

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

The idea behind JAPAN TOBACCO UNSPADR12 and Ebro Foods SA 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.