Correlation Between Japan Tobacco and Vector

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

Diversification Opportunities for Japan Tobacco and Vector

-0.71

Correlation Coefficient

Japan Tobacco  Vector

Pay attention - limited upside

The 3 months correlation between Japan and Vector is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Japan Tobacco ADR and Vector Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vector Group 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 Vector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vector Group has no effect on the direction of Japan Tobacco i.e., Japan Tobacco and Vector go up and down completely randomly.

Pair Corralation between Japan Tobacco and Vector

Assuming the 90 days horizon Japan Tobacco ADR is expected to under-perform the Vector. In addition to that, Japan Tobacco is 5.55 times more volatile than Vector Group. It trades about -0.05 of its total potential returns per unit of risk. Vector Group is currently generating about 0.01 per unit of volatility. If you would invest  1,498  in Vector Group on August 30, 2024 and sell it today you would earn a total of  1.00  from holding Vector Group or generate 0.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	42.19%
Values	Daily Returns

Japan Tobacco ADR  vs.  Vector Group

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.

Vector Group

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Vector Group has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, Vector is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Japan Tobacco and Vector

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

The idea behind Japan Tobacco ADR and Vector Group 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.