Correlation Between Summit Materials and Japan Tobacco

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

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

Diversification Opportunities for Summit Materials and Japan Tobacco

-0.69

Correlation Coefficient

Summit Materials  Japan Tobacco

Excellent diversification

The 3 months correlation between Summit and Japan is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Summit Materials 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 Summit Materials 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 Summit Materials 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 Summit Materials i.e., Summit Materials and Japan Tobacco go up and down completely randomly.

Pair Corralation between Summit Materials and Japan Tobacco

Considering the 90-day investment horizon Summit Materials is expected to generate 0.27 times more return on investment than Japan Tobacco. However, Summit Materials is 3.64 times less risky than Japan Tobacco. It trades about 0.08 of its potential returns per unit of risk. Japan Tobacco ADR is currently generating about -0.39 per unit of risk. If you would invest  5,082  in Summit Materials on October 8, 2024 and sell it today you would earn a total of  21.00  from holding Summit Materials or generate 0.41% return on investment over 90 days.

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

Summit Materials  vs.  Japan Tobacco ADR

Summit Materials

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Materials are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Summit Materials displayed solid returns over the last few months and may actually be approaching a breakup point.

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 Summit Materials and Japan Tobacco

The main advantage of trading using opposite Summit Materials and Japan Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Summit Materials 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 Summit Materials 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.