Correlation Between JAPAN TOBACCO and United Utilities

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

Diversification Opportunities for JAPAN TOBACCO and United Utilities

0.26

Correlation Coefficient

JAPAN TOBACCO  United Utilities

Modest diversification

The 3 months correlation between JAPAN and United is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding JAPAN TOBACCO UNSPADR12 and United Utilities Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Utilities 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 United Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Utilities has no effect on the direction of JAPAN TOBACCO i.e., JAPAN TOBACCO and United Utilities go up and down completely randomly.

Pair Corralation between JAPAN TOBACCO and United Utilities

Assuming the 90 days trading horizon JAPAN TOBACCO UNSPADR12 is expected to under-perform the United Utilities. In addition to that, JAPAN TOBACCO is 1.13 times more volatile than United Utilities Group. It trades about -0.06 of its total potential returns per unit of risk. United Utilities Group is currently generating about 0.1 per unit of volatility. If you would invest  1,175  in United Utilities Group on October 8, 2024 and sell it today you would earn a total of  95.00  from holding United Utilities Group or generate 8.09% 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.  United Utilities Group

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.

United Utilities

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in United Utilities Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain technical and fundamental indicators, United Utilities may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with JAPAN TOBACCO and United Utilities

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

The idea behind JAPAN TOBACCO UNSPADR12 and United Utilities Group 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.