Correlation Between Eurotech SpA and Japan Tobacco

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

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

Diversification Opportunities for Eurotech SpA and Japan Tobacco

-0.64

Correlation Coefficient

Eurotech SpA  Japan Tobacco

Excellent diversification

The 3 months correlation between Eurotech and Japan is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Eurotech SpA and Japan Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Tobacco and Eurotech SpA 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 Eurotech SpA 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 has no effect on the direction of Eurotech SpA i.e., Eurotech SpA and Japan Tobacco go up and down completely randomly.

Pair Corralation between Eurotech SpA and Japan Tobacco

Assuming the 90 days horizon Eurotech SpA is expected to generate 2.25 times more return on investment than Japan Tobacco. However, Eurotech SpA is 2.25 times more volatile than Japan Tobacco. It trades about 0.18 of its potential returns per unit of risk. Japan Tobacco is currently generating about -0.06 per unit of risk. If you would invest  66.00  in Eurotech SpA on April 24, 2025 and sell it today you would earn a total of  23.00  from holding Eurotech SpA or generate 34.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Eurotech SpA  vs.  Japan Tobacco

Eurotech SpA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Eurotech SpA are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Eurotech SpA reported solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Eurotech SpA and Japan Tobacco

The main advantage of trading using opposite Eurotech SpA and Japan Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eurotech SpA 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 Eurotech SpA and Japan 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.