Correlation Between Universal and Japan Tobacco

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

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

Diversification Opportunities for Universal and Japan Tobacco

0.31

Correlation Coefficient

Universal  Japan Tobacco

Weak diversification

The 3 months correlation between Universal and Japan is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Universal and Japan Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Tobacco and Universal 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 Universal 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 Universal i.e., Universal and Japan Tobacco go up and down completely randomly.

Pair Corralation between Universal and Japan Tobacco

Considering the 90-day investment horizon Universal is expected to generate 0.35 times more return on investment than Japan Tobacco. However, Universal is 2.87 times less risky than Japan Tobacco. It trades about 0.07 of its potential returns per unit of risk. Japan Tobacco is currently generating about 0.01 per unit of risk. If you would invest  5,348  in Universal on December 29, 2024 and sell it today you would earn a total of  295.00  from holding Universal or generate 5.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	90.16%
Values	Daily Returns

Universal  vs.  Japan Tobacco

Universal

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Universal are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Universal is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Japan Tobacco

Risk-Adjusted Performance

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 Universal and Japan Tobacco

The main advantage of trading using opposite Universal and Japan Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Universal 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 Universal 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.