Correlation Between Japan Tobacco and IMPERIAL TOBACCO

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

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

Diversification Opportunities for Japan Tobacco and IMPERIAL TOBACCO

0.22

Correlation Coefficient

Japan Tobacco  IMPERIAL TOBACCO

Modest diversification

The 3 months correlation between Japan and IMPERIAL is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Japan Tobacco and IMPERIAL TOBACCO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IMPERIAL TOBACCO 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 IMPERIAL TOBACCO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IMPERIAL TOBACCO has no effect on the direction of Japan Tobacco i.e., Japan Tobacco and IMPERIAL TOBACCO go up and down completely randomly.

Pair Corralation between Japan Tobacco and IMPERIAL TOBACCO

Assuming the 90 days horizon Japan Tobacco is expected to under-perform the IMPERIAL TOBACCO. In addition to that, Japan Tobacco is 1.16 times more volatile than IMPERIAL TOBACCO . It trades about -0.05 of its total potential returns per unit of risk. IMPERIAL TOBACCO is currently generating about -0.04 per unit of volatility. If you would invest  3,547  in IMPERIAL TOBACCO on May 5, 2025 and sell it today you would lose (160.00) from holding IMPERIAL TOBACCO or give up 4.51% of portfolio value over 90 days.

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

Japan Tobacco  vs.  IMPERIAL TOBACCO

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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

IMPERIAL TOBACCO

Risk-Adjusted Performance

Very Weak

Over the last 90 days IMPERIAL TOBACCO has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental drivers, IMPERIAL TOBACCO is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Japan Tobacco and IMPERIAL TOBACCO

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

The idea behind Japan Tobacco and IMPERIAL TOBACCO 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.