Correlation Between Molson Coors and Japan Tobacco

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

By analyzing existing cross correlation between Molson Coors Brewing and Japan Tobacco ADR, you can compare the effects of market volatilities on Molson Coors and Japan Tobacco 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 Molson Coors with a short position of Japan Tobacco. Check out your portfolio center. Please also check ongoing floating volatility patterns of Molson Coors and Japan Tobacco.

Diversification Opportunities for Molson Coors and Japan Tobacco

-0.42

Correlation Coefficient

Molson Coors  Japan Tobacco

Very good diversification

The 3 months correlation between Molson and Japan is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Molson Coors Brewing and Japan Tobacco ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Tobacco ADR and Molson Coors 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 Molson Coors Brewing are associated (or correlated) with Japan Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Japan Tobacco ADR has no effect on the direction of Molson Coors i.e., Molson Coors and Japan Tobacco go up and down completely randomly.

Pair Corralation between Molson Coors and Japan Tobacco

Considering the 90-day investment horizon Molson Coors Brewing is expected to generate 1.25 times more return on investment than Japan Tobacco. However, Molson Coors is 1.25 times more volatile than Japan Tobacco ADR. It trades about 0.03 of its potential returns per unit of risk. Japan Tobacco ADR is currently generating about -0.15 per unit of risk. If you would invest  5,694  in Molson Coors Brewing on October 1, 2024 and sell it today you would earn a total of  88.00  from holding Molson Coors Brewing or generate 1.55% return on investment over 90 days.

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

Molson Coors Brewing  vs.  Japan Tobacco ADR

Molson Coors Brewing

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Molson Coors Brewing are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Molson Coors is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

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.

Pair Trading with Molson Coors and Japan Tobacco

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

The idea behind Molson Coors Brewing and Japan Tobacco ADR 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.