Correlation Between Japan Tobacco and Designer Brands

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

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

Diversification Opportunities for Japan Tobacco and Designer Brands

0.47

Correlation Coefficient

Japan Tobacco  Designer Brands

Very weak diversification

The 3 months correlation between Japan and Designer is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Japan Tobacco and Designer Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Designer Brands 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 Designer Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Designer Brands has no effect on the direction of Japan Tobacco i.e., Japan Tobacco and Designer Brands go up and down completely randomly.

Pair Corralation between Japan Tobacco and Designer Brands

Assuming the 90 days horizon Japan Tobacco is expected to under-perform the Designer Brands. But the stock apears to be less risky and, when comparing its historical volatility, Japan Tobacco is 4.77 times less risky than Designer Brands. The stock trades about -0.07 of its potential returns per unit of risk. The Designer Brands is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  254.00  in Designer Brands on May 3, 2025 and sell it today you would lose (10.00) from holding Designer Brands or give up 3.94% of portfolio value over 90 days.

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

Japan Tobacco  vs.  Designer Brands

Japan Tobacco

Risk-Adjusted Performance

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.

Designer Brands

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Designer Brands are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Designer Brands may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Japan Tobacco and Designer Brands

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

The idea behind Japan Tobacco and Designer Brands 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.