Correlation Between Japan Tobacco and SL Green

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

Diversification Opportunities for Japan Tobacco and SL Green

-0.65

Correlation Coefficient

Japan Tobacco  SL Green

Excellent diversification

The 3 months correlation between Japan and SLG is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Japan Tobacco ADR and SL Green Realty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SL Green Realty 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 SL Green. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SL Green Realty has no effect on the direction of Japan Tobacco i.e., Japan Tobacco and SL Green go up and down completely randomly.

Pair Corralation between Japan Tobacco and SL Green

Assuming the 90 days horizon Japan Tobacco ADR is expected to generate 0.36 times more return on investment than SL Green. However, Japan Tobacco ADR is 2.75 times less risky than SL Green. It trades about -0.13 of its potential returns per unit of risk. SL Green Realty is currently generating about -0.31 per unit of risk. If you would invest  1,353  in Japan Tobacco ADR on September 22, 2024 and sell it today you would lose (31.00) from holding Japan Tobacco ADR or give up 2.29% of portfolio value over 90 days.

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

Japan Tobacco ADR  vs.  SL Green Realty

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 fragile 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.

SL Green Realty

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SL Green Realty has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, SL Green is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Japan Tobacco and SL Green

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

The idea behind Japan Tobacco ADR and SL Green Realty 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.