Correlation Between Japan Tobacco and Ziff Davis

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

Diversification Opportunities for Japan Tobacco and Ziff Davis

-0.48

Correlation Coefficient

Japan Tobacco  Ziff Davis

Very good diversification

The 3 months correlation between Japan and Ziff is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Japan Tobacco ADR and Ziff Davis in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ziff Davis 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 Ziff Davis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ziff Davis has no effect on the direction of Japan Tobacco i.e., Japan Tobacco and Ziff Davis go up and down completely randomly.

Pair Corralation between Japan Tobacco and Ziff Davis

Assuming the 90 days horizon Japan Tobacco ADR is expected to under-perform the Ziff Davis. But the pink sheet apears to be less risky and, when comparing its historical volatility, Japan Tobacco ADR is 1.85 times less risky than Ziff Davis. The pink sheet trades about -0.22 of its potential returns per unit of risk. The Ziff Davis is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  5,788  in Ziff Davis on September 27, 2024 and sell it today you would lose (152.00) from holding Ziff Davis or give up 2.63% of portfolio value over 90 days.

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

Japan Tobacco ADR  vs.  Ziff Davis

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 abnormal 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.

Ziff Davis

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ziff Davis are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile fundamental indicators, Ziff Davis exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Japan Tobacco and Ziff Davis

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

The idea behind Japan Tobacco ADR and Ziff Davis 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.