Correlation Between JAPAN TOBACCO and CECO ENVIRONMENTAL

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

Diversification Opportunities for JAPAN TOBACCO and CECO ENVIRONMENTAL

0.55

Correlation Coefficient

JAPAN TOBACCO  CECO ENVIRONMENTAL

Very weak diversification

The 3 months correlation between JAPAN and CECO is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding JAPAN TOBACCO UNSPADR12 and CECO ENVIRONMENTAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CECO ENVIRONMENTAL 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 CECO ENVIRONMENTAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CECO ENVIRONMENTAL has no effect on the direction of JAPAN TOBACCO i.e., JAPAN TOBACCO and CECO ENVIRONMENTAL go up and down completely randomly.

Pair Corralation between JAPAN TOBACCO and CECO ENVIRONMENTAL

Assuming the 90 days trading horizon JAPAN TOBACCO is expected to generate 39.92 times less return on investment than CECO ENVIRONMENTAL. But when comparing it to its historical volatility, JAPAN TOBACCO UNSPADR12 is 2.79 times less risky than CECO ENVIRONMENTAL. It trades about 0.01 of its potential returns per unit of risk. CECO ENVIRONMENTAL is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,532  in CECO ENVIRONMENTAL on September 15, 2024 and sell it today you would earn a total of  530.00  from holding CECO ENVIRONMENTAL or generate 20.93% return on investment over 90 days.

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

JAPAN TOBACCO UNSPADR12  vs.  CECO ENVIRONMENTAL

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.

CECO ENVIRONMENTAL

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CECO ENVIRONMENTAL are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, CECO ENVIRONMENTAL unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with JAPAN TOBACCO and CECO ENVIRONMENTAL

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

The idea behind JAPAN TOBACCO UNSPADR12 and CECO ENVIRONMENTAL 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.