Correlation Between Japan Tobacco and BJs Wholesale

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

By analyzing existing cross correlation between Japan Tobacco and BJs Wholesale Club, you can compare the effects of market volatilities on Japan Tobacco and BJs Wholesale 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 BJs Wholesale. Check out your portfolio center. Please also check ongoing floating volatility patterns of Japan Tobacco and BJs Wholesale.

Diversification Opportunities for Japan Tobacco and BJs Wholesale

0.25

Correlation Coefficient

Japan Tobacco  BJs Wholesale

Modest diversification

The 3 months correlation between Japan and BJs is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Japan Tobacco and BJs Wholesale Club in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BJs Wholesale Club 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 are associated (or correlated) with BJs Wholesale. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BJs Wholesale Club has no effect on the direction of Japan Tobacco i.e., Japan Tobacco and BJs Wholesale go up and down completely randomly.

Pair Corralation between Japan Tobacco and BJs Wholesale

Assuming the 90 days horizon Japan Tobacco is expected to generate 10.18 times less return on investment than BJs Wholesale. But when comparing it to its historical volatility, Japan Tobacco is 2.22 times less risky than BJs Wholesale. It trades about 0.05 of its potential returns per unit of risk. BJs Wholesale Club is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  8,100  in BJs Wholesale Club on September 21, 2024 and sell it today you would earn a total of  950.00  from holding BJs Wholesale Club or generate 11.73% return on investment over 90 days.

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

Japan Tobacco  vs.  BJs Wholesale Club

Japan Tobacco

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Japan Tobacco has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

BJs Wholesale Club

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BJs Wholesale Club are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, BJs Wholesale reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Japan Tobacco and BJs Wholesale

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

The idea behind Japan Tobacco and BJs Wholesale Club 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.