Correlation Between United Airlines and Japan Tobacco

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

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

Diversification Opportunities for United Airlines and Japan Tobacco

-0.61

Correlation Coefficient

United Airlines  Japan Tobacco

Excellent diversification

The 3 months correlation between United and Japan is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding United Airlines Holdings 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 United Airlines 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 United Airlines Holdings 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 United Airlines i.e., United Airlines and Japan Tobacco go up and down completely randomly.

Pair Corralation between United Airlines and Japan Tobacco

Considering the 90-day investment horizon United Airlines Holdings is expected to under-perform the Japan Tobacco. In addition to that, United Airlines is 2.94 times more volatile than Japan Tobacco ADR. It trades about -0.11 of its total potential returns per unit of risk. Japan Tobacco ADR is currently generating about 0.09 per unit of volatility. If you would invest  1,295  in Japan Tobacco ADR on December 25, 2024 and sell it today you would earn a total of  71.00  from holding Japan Tobacco ADR or generate 5.48% return on investment over 90 days.

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

United Airlines Holdings  vs.  Japan Tobacco ADR

United Airlines Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days United Airlines Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Japan Tobacco ADR

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Japan Tobacco ADR are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Japan Tobacco is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with United Airlines and Japan Tobacco

The main advantage of trading using opposite United Airlines and Japan Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Airlines 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 United Airlines Holdings 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 Commodity Directory module to find actively traded commodities issued by global exchanges.