Correlation Between JAPAN TOBACCO and Sunstone Hotel

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

Diversification Opportunities for JAPAN TOBACCO and Sunstone Hotel

0.32

Correlation Coefficient

JAPAN TOBACCO  Sunstone Hotel

Weak diversification

The 3 months correlation between JAPAN and Sunstone is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding JAPAN TOBACCO UNSPADR12 and Sunstone Hotel Investors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sunstone Hotel Investors 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 Sunstone Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sunstone Hotel Investors has no effect on the direction of JAPAN TOBACCO i.e., JAPAN TOBACCO and Sunstone Hotel go up and down completely randomly.

Pair Corralation between JAPAN TOBACCO and Sunstone Hotel

Assuming the 90 days trading horizon JAPAN TOBACCO is expected to generate 1.5 times less return on investment than Sunstone Hotel. In addition to that, JAPAN TOBACCO is 1.1 times more volatile than Sunstone Hotel Investors. It trades about 0.04 of its total potential returns per unit of risk. Sunstone Hotel Investors is currently generating about 0.06 per unit of volatility. If you would invest  984.00  in Sunstone Hotel Investors on September 16, 2024 and sell it today you would earn a total of  176.00  from holding Sunstone Hotel Investors or generate 17.89% 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.  Sunstone Hotel Investors

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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Sunstone Hotel Investors

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sunstone Hotel Investors are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sunstone Hotel reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with JAPAN TOBACCO and Sunstone Hotel

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

The idea behind JAPAN TOBACCO UNSPADR12 and Sunstone Hotel Investors 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.