Correlation Between JAPAN TOBACCO and ORMAT TECHNOLOGIES

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

Diversification Opportunities for JAPAN TOBACCO and ORMAT TECHNOLOGIES

-0.06

Correlation Coefficient

JAPAN TOBACCO  ORMAT TECHNOLOGIES

Good diversification

The 3 months correlation between JAPAN and ORMAT is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding JAPAN TOBACCO UNSPADR12 and ORMAT TECHNOLOGIES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ORMAT TECHNOLOGIES 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 ORMAT TECHNOLOGIES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ORMAT TECHNOLOGIES has no effect on the direction of JAPAN TOBACCO i.e., JAPAN TOBACCO and ORMAT TECHNOLOGIES go up and down completely randomly.

Pair Corralation between JAPAN TOBACCO and ORMAT TECHNOLOGIES

Assuming the 90 days trading horizon JAPAN TOBACCO UNSPADR12 is expected to generate 0.49 times more return on investment than ORMAT TECHNOLOGIES. However, JAPAN TOBACCO UNSPADR12 is 2.02 times less risky than ORMAT TECHNOLOGIES. It trades about -0.19 of its potential returns per unit of risk. ORMAT TECHNOLOGIES is currently generating about -0.5 per unit of risk. If you would invest  1,260  in JAPAN TOBACCO UNSPADR12 on September 24, 2024 and sell it today you would lose (40.00) from holding JAPAN TOBACCO UNSPADR12 or give up 3.17% of portfolio value over 90 days.

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

JAPAN TOBACCO UNSPADR12  vs.  ORMAT TECHNOLOGIES

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.

ORMAT TECHNOLOGIES

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ORMAT TECHNOLOGIES has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, ORMAT TECHNOLOGIES is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with JAPAN TOBACCO and ORMAT TECHNOLOGIES

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

The idea behind JAPAN TOBACCO UNSPADR12 and ORMAT TECHNOLOGIES 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.