Correlation Between Japan Tobacco and Finnovate Acquisition

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

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

Diversification Opportunities for Japan Tobacco and Finnovate Acquisition

0.66

Correlation Coefficient

Japan Tobacco  Finnovate Acquisition

Poor diversification

The 3 months correlation between Japan and Finnovate is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Japan Tobacco ADR and Finnovate Acquisition Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Finnovate Acquisition 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 ADR are associated (or correlated) with Finnovate Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Finnovate Acquisition has no effect on the direction of Japan Tobacco i.e., Japan Tobacco and Finnovate Acquisition go up and down completely randomly.

Pair Corralation between Japan Tobacco and Finnovate Acquisition

Assuming the 90 days horizon Japan Tobacco ADR is expected to generate 7.87 times more return on investment than Finnovate Acquisition. However, Japan Tobacco is 7.87 times more volatile than Finnovate Acquisition Corp. It trades about 0.15 of its potential returns per unit of risk. Finnovate Acquisition Corp is currently generating about 0.19 per unit of risk. If you would invest  1,311  in Japan Tobacco ADR on February 23, 2024 and sell it today you would earn a total of  106.00  from holding Japan Tobacco ADR or generate 8.09% return on investment over 90 days.

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

Japan Tobacco ADR  vs.  Finnovate Acquisition Corp

Japan Tobacco ADR

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Japan Tobacco ADR are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Japan Tobacco may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Finnovate Acquisition

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Finnovate Acquisition Corp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Finnovate Acquisition 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 Finnovate Acquisition

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

The idea behind Japan Tobacco ADR and Finnovate Acquisition Corp 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.

Check out your portfolio center.

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.