Correlation Between Scandinavian Tobacco and Fortune Brands

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

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

Diversification Opportunities for Scandinavian Tobacco and Fortune Brands

0.63

Correlation Coefficient

Scandinavian Tobacco  Fortune Brands

Poor diversification

The 3 months correlation between Scandinavian and Fortune is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Scandinavian Tobacco Group and Fortune Brands Home in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortune Brands Home and Scandinavian 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 Scandinavian Tobacco Group are associated (or correlated) with Fortune Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortune Brands Home has no effect on the direction of Scandinavian Tobacco i.e., Scandinavian Tobacco and Fortune Brands go up and down completely randomly.

Pair Corralation between Scandinavian Tobacco and Fortune Brands

Assuming the 90 days trading horizon Scandinavian Tobacco Group is expected to generate 0.71 times more return on investment than Fortune Brands. However, Scandinavian Tobacco Group is 1.41 times less risky than Fortune Brands. It trades about -0.04 of its potential returns per unit of risk. Fortune Brands Home is currently generating about -0.16 per unit of risk. If you would invest  10,330  in Scandinavian Tobacco Group on October 24, 2024 and sell it today you would lose (365.00) from holding Scandinavian Tobacco Group or give up 3.53% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	85.48%
Values	Daily Returns

Scandinavian Tobacco Group  vs.  Fortune Brands Home

Scandinavian Tobacco

Risk-Adjusted Performance

0 of 100

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 comparatively stable basic indicators, Scandinavian Tobacco is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Fortune Brands Home

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fortune Brands Home has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Scandinavian Tobacco and Fortune Brands

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

The idea behind Scandinavian Tobacco Group and Fortune Brands Home 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.