Correlation Between Sphere Entertainment and Japan Tobacco

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

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

Diversification Opportunities for Sphere Entertainment and Japan Tobacco

0.42

Correlation Coefficient

Sphere Entertainment  Japan Tobacco

Very weak diversification

The 3 months correlation between Sphere and Japan is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Sphere Entertainment Co 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 Sphere Entertainment 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 Sphere Entertainment Co 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 Sphere Entertainment i.e., Sphere Entertainment and Japan Tobacco go up and down completely randomly.

Pair Corralation between Sphere Entertainment and Japan Tobacco

Given the investment horizon of 90 days Sphere Entertainment Co is expected to generate 2.89 times more return on investment than Japan Tobacco. However, Sphere Entertainment is 2.89 times more volatile than Japan Tobacco ADR. It trades about 0.05 of its potential returns per unit of risk. Japan Tobacco ADR is currently generating about 0.05 per unit of risk. If you would invest  2,232  in Sphere Entertainment Co on October 11, 2024 and sell it today you would earn a total of  1,905  from holding Sphere Entertainment Co or generate 85.35% return on investment over 90 days.

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

Sphere Entertainment Co  vs.  Japan Tobacco ADR

Sphere Entertainment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sphere Entertainment Co has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical indicators, Sphere Entertainment is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail 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 fragile 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 Sphere Entertainment and Japan Tobacco

The main advantage of trading using opposite Sphere Entertainment and Japan Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sphere Entertainment 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 Sphere Entertainment Co 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.