Correlation Between JAPAN TOBACCO and RCM TECHNOLOGIES

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

Diversification Opportunities for JAPAN TOBACCO and RCM TECHNOLOGIES

-0.18

Correlation Coefficient

JAPAN TOBACCO  RCM TECHNOLOGIES

Good diversification

The 3 months correlation between JAPAN and RCM is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding JAPAN TOBACCO UNSPADR12 and RCM TECHNOLOGIES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RCM 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 RCM TECHNOLOGIES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RCM TECHNOLOGIES has no effect on the direction of JAPAN TOBACCO i.e., JAPAN TOBACCO and RCM TECHNOLOGIES go up and down completely randomly.

Pair Corralation between JAPAN TOBACCO and RCM TECHNOLOGIES

Assuming the 90 days trading horizon JAPAN TOBACCO UNSPADR12 is expected to under-perform the RCM TECHNOLOGIES. In addition to that, JAPAN TOBACCO is 1.26 times more volatile than RCM TECHNOLOGIES. It trades about -0.32 of its total potential returns per unit of risk. RCM TECHNOLOGIES is currently generating about -0.19 per unit of volatility. If you would invest  2,180  in RCM TECHNOLOGIES on October 12, 2024 and sell it today you would lose (20.00) from holding RCM TECHNOLOGIES or give up 0.92% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	23.53%
Values	Daily Returns

JAPAN TOBACCO UNSPADR12  vs.  RCM 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 latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

RCM TECHNOLOGIES

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days RCM TECHNOLOGIES has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather uncertain basic indicators, RCM TECHNOLOGIES exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with JAPAN TOBACCO and RCM TECHNOLOGIES

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

The idea behind JAPAN TOBACCO UNSPADR12 and RCM 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.