Correlation Between JAPAN TOBACCO and Bridgestone

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

Diversification Opportunities for JAPAN TOBACCO and Bridgestone

0.4

Correlation Coefficient

JAPAN TOBACCO  Bridgestone

Very weak diversification

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

Pair Corralation between JAPAN TOBACCO and Bridgestone

Assuming the 90 days trading horizon JAPAN TOBACCO UNSPADR12 is expected to under-perform the Bridgestone. In addition to that, JAPAN TOBACCO is 1.29 times more volatile than Bridgestone. It trades about -0.02 of its total potential returns per unit of risk. Bridgestone is currently generating about 0.03 per unit of volatility. If you would invest  1,600  in Bridgestone on October 6, 2024 and sell it today you would earn a total of  20.00  from holding Bridgestone or generate 1.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.5%
Values	Daily Returns

JAPAN TOBACCO UNSPADR12  vs.  Bridgestone

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.

Bridgestone

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bridgestone has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Bridgestone 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 Bridgestone

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

The idea behind JAPAN TOBACCO UNSPADR12 and Bridgestone 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.