Correlation Between Japan Tobacco and GENERAL

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

Diversification Opportunities for Japan Tobacco and GENERAL

-0.73

Correlation Coefficient

Japan Tobacco  GENERAL

Pay attention - limited upside

The 3 months correlation between Japan and GENERAL is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Japan Tobacco ADR and GENERAL ELEC CAP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GENERAL ELEC CAP 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 GENERAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GENERAL ELEC CAP has no effect on the direction of Japan Tobacco i.e., Japan Tobacco and GENERAL go up and down completely randomly.

Pair Corralation between Japan Tobacco and GENERAL

Assuming the 90 days horizon Japan Tobacco ADR is expected to under-perform the GENERAL. In addition to that, Japan Tobacco is 1.13 times more volatile than GENERAL ELEC CAP. It trades about -0.01 of its total potential returns per unit of risk. GENERAL ELEC CAP is currently generating about 0.0 per unit of volatility. If you would invest  10,113  in GENERAL ELEC CAP on September 15, 2024 and sell it today you would lose (56.00) from holding GENERAL ELEC CAP or give up 0.55% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	40.48%
Values	Daily Returns

Japan Tobacco ADR  vs.  GENERAL ELEC CAP

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.

GENERAL ELEC CAP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GENERAL ELEC CAP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for GENERAL ELEC CAP investors.

Pair Trading with Japan Tobacco and GENERAL

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

The idea behind Japan Tobacco ADR and GENERAL ELEC CAP 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.