Correlation Between Pembina Pipeline and Japan Tobacco

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

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

Diversification Opportunities for Pembina Pipeline and Japan Tobacco

-0.23

Correlation Coefficient

Pembina Pipeline  Japan Tobacco

Very good diversification

The 3 months correlation between Pembina and Japan is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Pembina Pipeline Corp and Japan Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Tobacco and Pembina Pipeline 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 Pembina Pipeline Corp 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 Pembina Pipeline i.e., Pembina Pipeline and Japan Tobacco go up and down completely randomly.

Pair Corralation between Pembina Pipeline and Japan Tobacco

Assuming the 90 days horizon Pembina Pipeline is expected to generate 1.26 times less return on investment than Japan Tobacco. But when comparing it to its historical volatility, Pembina Pipeline Corp is 1.33 times less risky than Japan Tobacco. It trades about 0.05 of its potential returns per unit of risk. Japan Tobacco is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,857  in Japan Tobacco on September 20, 2024 and sell it today you would earn a total of  693.00  from holding Japan Tobacco or generate 37.32% return on investment over 90 days.

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

Pembina Pipeline Corp  vs.  Japan Tobacco

Pembina Pipeline Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pembina Pipeline Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Pembina Pipeline is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Japan Tobacco

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Japan Tobacco 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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Pembina Pipeline and Japan Tobacco

The main advantage of trading using opposite Pembina Pipeline and Japan Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pembina Pipeline 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 Pembina Pipeline Corp 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.