Correlation Between Japan Tobacco and SEI Investments

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

Diversification Opportunities for Japan Tobacco and SEI Investments

-0.82

Correlation Coefficient

Japan Tobacco  SEI Investments

Pay attention - limited upside

The 3 months correlation between Japan and SEI is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding Japan Tobacco ADR and SEI Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SEI Investments 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 SEI Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SEI Investments has no effect on the direction of Japan Tobacco i.e., Japan Tobacco and SEI Investments go up and down completely randomly.

Pair Corralation between Japan Tobacco and SEI Investments

Assuming the 90 days horizon Japan Tobacco ADR is expected to under-perform the SEI Investments. But the pink sheet apears to be less risky and, when comparing its historical volatility, Japan Tobacco ADR is 1.11 times less risky than SEI Investments. The pink sheet trades about -0.02 of its potential returns per unit of risk. The SEI Investments is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  6,695  in SEI Investments on September 4, 2024 and sell it today you would earn a total of  1,497  from holding SEI Investments or generate 22.36% return on investment over 90 days.

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

Japan Tobacco ADR  vs.  SEI Investments

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.

SEI Investments

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SEI Investments are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent forward indicators, SEI Investments exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Japan Tobacco and SEI Investments

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

The idea behind Japan Tobacco ADR and SEI Investments 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.