Correlation Between Japan Tobacco and Kaival Brands

Can any of the company-specific risk be diversified away by investing in both Japan Tobacco and Kaival Brands 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 Kaival Brands 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 Kaival Brands Innovations, you can compare the effects of market volatilities on Japan Tobacco and Kaival Brands 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 Kaival Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Japan Tobacco and Kaival Brands.

Diversification Opportunities for Japan Tobacco and Kaival Brands

-0.18

Correlation Coefficient

Japan Tobacco  Kaival Brands

Good diversification

The 3 months correlation between Japan and Kaival is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Japan Tobacco ADR and Kaival Brands Innovations in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kaival Brands Innovations 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 Kaival Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kaival Brands Innovations has no effect on the direction of Japan Tobacco i.e., Japan Tobacco and Kaival Brands go up and down completely randomly.

Pair Corralation between Japan Tobacco and Kaival Brands

Assuming the 90 days horizon Japan Tobacco ADR is expected to generate 0.31 times more return on investment than Kaival Brands. However, Japan Tobacco ADR is 3.18 times less risky than Kaival Brands. It trades about 0.05 of its potential returns per unit of risk. Kaival Brands Innovations is currently generating about -0.38 per unit of risk. If you would invest  1,377  in Japan Tobacco ADR on August 31, 2024 and sell it today you would earn a total of  16.00  from holding Japan Tobacco ADR or generate 1.16% return on investment over 90 days.

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

Japan Tobacco ADR  vs.  Kaival Brands Innovations

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.

Kaival Brands Innovations

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Kaival Brands Innovations are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent basic indicators, Kaival Brands disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Japan Tobacco and Kaival Brands

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

The idea behind Japan Tobacco ADR and Kaival Brands Innovations 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.