Correlation Between Krones AG and Scandinavian Tobacco

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Can any of the company-specific risk be diversified away by investing in both Krones AG and Scandinavian 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 Krones AG and Scandinavian Tobacco into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Krones AG ON and Scandinavian Tobacco Group, you can compare the effects of market volatilities on Krones AG and Scandinavian 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 Krones AG with a short position of Scandinavian Tobacco. Check out your portfolio center. Please also check ongoing floating volatility patterns of Krones AG and Scandinavian Tobacco.

Diversification Opportunities for Krones AG and Scandinavian Tobacco

0.55
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Krones and Scandinavian is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Krones AG ON and Scandinavian Tobacco Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scandinavian Tobacco and Krones AG 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 Krones AG ON are associated (or correlated) with Scandinavian Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scandinavian Tobacco has no effect on the direction of Krones AG i.e., Krones AG and Scandinavian Tobacco go up and down completely randomly.

Pair Corralation between Krones AG and Scandinavian Tobacco

Assuming the 90 days trading horizon Krones AG ON is expected to generate 0.95 times more return on investment than Scandinavian Tobacco. However, Krones AG ON is 1.06 times less risky than Scandinavian Tobacco. It trades about 0.07 of its potential returns per unit of risk. Scandinavian Tobacco Group is currently generating about 0.01 per unit of risk. If you would invest  12,180  in Krones AG ON on October 11, 2024 and sell it today you would earn a total of  160.00  from holding Krones AG ON or generate 1.31% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Krones AG ON  vs.  Scandinavian Tobacco Group

 Performance 
       Timeline  
Krones AG ON 

Risk-Adjusted Performance

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Very Weak
Over the last 90 days Krones AG ON has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Krones AG is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.
Scandinavian Tobacco 

Risk-Adjusted Performance

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Weak
 
Strong
Very Weak
Over the last 90 days Scandinavian Tobacco Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Krones AG and Scandinavian Tobacco Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Krones AG and Scandinavian Tobacco

The main advantage of trading using opposite Krones AG and Scandinavian Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Krones AG position performs unexpectedly, Scandinavian 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 Scandinavian Tobacco will offset losses from the drop in Scandinavian Tobacco's long position.
The idea behind Krones AG ON and Scandinavian Tobacco Group 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.

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