Correlation Between JAPAN TOBACCO and Expedia

Can any of the company-specific risk be diversified away by investing in both JAPAN TOBACCO and Expedia 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 Expedia into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between JAPAN TOBACCO UNSPADR12 and Expedia Group, you can compare the effects of market volatilities on JAPAN TOBACCO and Expedia 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 Expedia. Check out your portfolio center. Please also check ongoing floating volatility patterns of JAPAN TOBACCO and Expedia.

Diversification Opportunities for JAPAN TOBACCO and Expedia

-0.03

Correlation Coefficient

JAPAN TOBACCO  Expedia

Good diversification

The 3 months correlation between JAPAN and Expedia is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding JAPAN TOBACCO UNSPADR12 and Expedia Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Expedia 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 UNSPADR12 are associated (or correlated) with Expedia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Expedia Group has no effect on the direction of JAPAN TOBACCO i.e., JAPAN TOBACCO and Expedia go up and down completely randomly.

Pair Corralation between JAPAN TOBACCO and Expedia

Assuming the 90 days trading horizon JAPAN TOBACCO is expected to generate 30.33 times less return on investment than Expedia. But when comparing it to its historical volatility, JAPAN TOBACCO UNSPADR12 is 1.56 times less risky than Expedia. It trades about 0.02 of its potential returns per unit of risk. Expedia Group is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest  11,854  in Expedia Group on September 13, 2024 and sell it today you would earn a total of  5,966  from holding Expedia Group or generate 50.33% return on investment over 90 days.

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

JAPAN TOBACCO UNSPADR12  vs.  Expedia Group

JAPAN TOBACCO UNSPADR12

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in JAPAN TOBACCO UNSPADR12 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, JAPAN TOBACCO is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Expedia Group

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Expedia Group are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Expedia reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with JAPAN TOBACCO and Expedia

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

The idea behind JAPAN TOBACCO UNSPADR12 and Expedia 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.