Correlation Between PNC Financial and Japan Tobacco

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

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

Diversification Opportunities for PNC Financial and Japan Tobacco

-0.62

Correlation Coefficient

PNC Financial  Japan Tobacco

Excellent diversification

The 3 months correlation between PNC and Japan is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding PNC Financial Services and Japan Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Tobacco and PNC Financial 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 PNC Financial Services 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 PNC Financial i.e., PNC Financial and Japan Tobacco go up and down completely randomly.

Pair Corralation between PNC Financial and Japan Tobacco

Assuming the 90 days trading horizon PNC Financial Services is expected to generate 1.33 times more return on investment than Japan Tobacco. However, PNC Financial is 1.33 times more volatile than Japan Tobacco. It trades about 0.23 of its potential returns per unit of risk. Japan Tobacco is currently generating about -0.03 per unit of risk. If you would invest  12,887  in PNC Financial Services on April 19, 2025 and sell it today you would earn a total of  3,613  from holding PNC Financial Services or generate 28.04% return on investment over 90 days.

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

PNC Financial Services  vs.  Japan Tobacco

PNC Financial Services

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in PNC Financial Services are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, PNC Financial unveiled 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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with PNC Financial and Japan Tobacco

The main advantage of trading using opposite PNC Financial and Japan Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PNC Financial 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 PNC Financial Services 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.