Correlation Between Willamette Valley and Japan Tobacco

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

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

Diversification Opportunities for Willamette Valley and Japan Tobacco

0.71

Correlation Coefficient

Willamette Valley  Japan Tobacco

Poor diversification

The 3 months correlation between Willamette and Japan is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Willamette Valley Vineyards 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 Willamette Valley 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 Willamette Valley Vineyards 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 Willamette Valley i.e., Willamette Valley and Japan Tobacco go up and down completely randomly.

Pair Corralation between Willamette Valley and Japan Tobacco

Given the investment horizon of 90 days Willamette Valley Vineyards is expected to under-perform the Japan Tobacco. In addition to that, Willamette Valley is 1.64 times more volatile than Japan Tobacco ADR. It trades about -0.09 of its total potential returns per unit of risk. Japan Tobacco ADR is currently generating about -0.02 per unit of volatility. If you would invest  1,427  in Japan Tobacco ADR on September 2, 2024 and sell it today you would lose (23.00) from holding Japan Tobacco ADR or give up 1.61% of portfolio value over 90 days.

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

Willamette Valley Vineyards  vs.  Japan Tobacco ADR

Willamette Valley

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Willamette Valley Vineyards has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

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 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 Willamette Valley and Japan Tobacco

The main advantage of trading using opposite Willamette Valley and Japan Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Willamette Valley 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 Willamette Valley Vineyards 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.