Correlation Between Norwegian Air and Japan Tobacco

Can any of the company-specific risk be diversified away by investing in both Norwegian Air and Japan Tobacco 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 Norwegian Air and Japan Tobacco into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Norwegian Air Shuttle and Japan Tobacco, you can compare the effects of market volatilities on Norwegian Air and Japan Tobacco 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 Norwegian Air with a short position of Japan Tobacco. Check out your portfolio center. Please also check ongoing floating volatility patterns of Norwegian Air and Japan Tobacco.

Diversification Opportunities for Norwegian Air and Japan Tobacco

0.01

Correlation Coefficient

Norwegian Air  Japan Tobacco

Significant diversification

The 3 months correlation between Norwegian and Japan is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Norwegian Air Shuttle and Japan Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Tobacco and Norwegian Air 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 Norwegian Air Shuttle are associated (or correlated) with Japan Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Japan Tobacco has no effect on the direction of Norwegian Air i.e., Norwegian Air and Japan Tobacco go up and down completely randomly.

Pair Corralation between Norwegian Air and Japan Tobacco

Assuming the 90 days horizon Norwegian Air Shuttle is expected to generate 2.11 times more return on investment than Japan Tobacco. However, Norwegian Air is 2.11 times more volatile than Japan Tobacco. It trades about 0.06 of its potential returns per unit of risk. Japan Tobacco is currently generating about 0.02 per unit of risk. If you would invest  93.00  in Norwegian Air Shuttle on December 24, 2024 and sell it today you would earn a total of  8.00  from holding Norwegian Air Shuttle or generate 8.6% return on investment over 90 days.

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

Norwegian Air Shuttle  vs.  Japan Tobacco

Norwegian Air Shuttle

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Norwegian Air Shuttle are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Norwegian Air may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Japan Tobacco

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Japan Tobacco are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Pair Trading with Norwegian Air and Japan Tobacco

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

The idea behind Norwegian Air Shuttle and Japan Tobacco 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 CEOs Directory module to screen CEOs from public companies around the world.