Correlation Between Royalty Management and Japan Tobacco

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

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

Diversification Opportunities for Royalty Management and Japan Tobacco

-0.71

Correlation Coefficient

Royalty Management  Japan Tobacco

Pay attention - limited upside

The 3 months correlation between Royalty and Japan is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Royalty Management Holding and Japan Tobacco ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Tobacco ADR and Royalty Management 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 Royalty Management Holding 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 ADR has no effect on the direction of Royalty Management i.e., Royalty Management and Japan Tobacco go up and down completely randomly.

Pair Corralation between Royalty Management and Japan Tobacco

Given the investment horizon of 90 days Royalty Management Holding is expected to generate 8.38 times more return on investment than Japan Tobacco. However, Royalty Management is 8.38 times more volatile than Japan Tobacco ADR. It trades about -0.04 of its potential returns per unit of risk. Japan Tobacco ADR is currently generating about -0.41 per unit of risk. If you would invest  100.00  in Royalty Management Holding on September 28, 2024 and sell it today you would lose (8.01) from holding Royalty Management Holding or give up 8.01% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Royalty Management Holding  vs.  Japan Tobacco ADR

Royalty Management

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days Royalty Management Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Royalty Management is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Japan Tobacco ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Japan Tobacco ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Royalty Management and Japan Tobacco

The main advantage of trading using opposite Royalty Management and Japan Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Royalty Management 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 Royalty Management Holding and Japan Tobacco ADR 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.