Correlation Between JAPAN TOBACCO and Iberdrola

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

Diversification Opportunities for JAPAN TOBACCO and Iberdrola

0.39

Correlation Coefficient

JAPAN TOBACCO  Iberdrola

Weak diversification

The 3 months correlation between JAPAN and Iberdrola is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding JAPAN TOBACCO UNSPADR12 and Iberdrola SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iberdrola 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 Iberdrola. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iberdrola SA has no effect on the direction of JAPAN TOBACCO i.e., JAPAN TOBACCO and Iberdrola go up and down completely randomly.

Pair Corralation between JAPAN TOBACCO and Iberdrola

Assuming the 90 days trading horizon JAPAN TOBACCO UNSPADR12 is expected to under-perform the Iberdrola. In addition to that, JAPAN TOBACCO is 1.22 times more volatile than Iberdrola SA. It trades about 0.0 of its total potential returns per unit of risk. Iberdrola SA is currently generating about 0.18 per unit of volatility. If you would invest  1,285  in Iberdrola SA on December 22, 2024 and sell it today you would earn a total of  160.00  from holding Iberdrola SA or generate 12.45% return on investment over 90 days.

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

JAPAN TOBACCO UNSPADR12  vs.  Iberdrola SA

JAPAN TOBACCO UNSPADR12

Risk-Adjusted Performance

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.

Iberdrola SA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Iberdrola SA are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain technical and fundamental indicators, Iberdrola reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with JAPAN TOBACCO and Iberdrola

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

The idea behind JAPAN TOBACCO UNSPADR12 and Iberdrola 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..