Correlation Between Japan Tobacco and Digi International

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

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

Diversification Opportunities for Japan Tobacco and Digi International

-0.52

Correlation Coefficient

Japan Tobacco  Digi International

Excellent diversification

The 3 months correlation between Japan and Digi is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Japan Tobacco ADR and Digi International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digi International and Japan Tobacco 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 Japan Tobacco ADR are associated (or correlated) with Digi International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digi International has no effect on the direction of Japan Tobacco i.e., Japan Tobacco and Digi International go up and down completely randomly.

Pair Corralation between Japan Tobacco and Digi International

Assuming the 90 days horizon Japan Tobacco ADR is expected to under-perform the Digi International. But the pink sheet apears to be less risky and, when comparing its historical volatility, Japan Tobacco ADR is 2.21 times less risky than Digi International. The pink sheet trades about -0.14 of its potential returns per unit of risk. The Digi International is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,726  in Digi International on September 27, 2024 and sell it today you would earn a total of  350.00  from holding Digi International or generate 12.84% return on investment over 90 days.

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

Japan Tobacco ADR  vs.  Digi International

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 abnormal 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.

Digi International

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Digi International are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating forward indicators, Digi International demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Japan Tobacco and Digi International

The main advantage of trading using opposite Japan Tobacco and Digi International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Japan Tobacco position performs unexpectedly, Digi International 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 Digi International will offset losses from the drop in Digi International's long position.

The idea behind Japan Tobacco ADR and Digi International 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.