Correlation Between Scandinavian Tobacco and Arrow Electronics

Can any of the company-specific risk be diversified away by investing in both Scandinavian Tobacco and Arrow Electronics 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 Arrow Electronics 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 Arrow Electronics, you can compare the effects of market volatilities on Scandinavian Tobacco and Arrow Electronics 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 Arrow Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Scandinavian Tobacco and Arrow Electronics.

Diversification Opportunities for Scandinavian Tobacco and Arrow Electronics

-0.64

Correlation Coefficient

Scandinavian Tobacco  Arrow Electronics

Excellent diversification

The 3 months correlation between Scandinavian and Arrow is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Scandinavian Tobacco Group and Arrow Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arrow Electronics 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 Arrow Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arrow Electronics has no effect on the direction of Scandinavian Tobacco i.e., Scandinavian Tobacco and Arrow Electronics go up and down completely randomly.

Pair Corralation between Scandinavian Tobacco and Arrow Electronics

Assuming the 90 days horizon Scandinavian Tobacco Group is expected to generate 0.93 times more return on investment than Arrow Electronics. However, Scandinavian Tobacco Group is 1.08 times less risky than Arrow Electronics. It trades about 0.13 of its potential returns per unit of risk. Arrow Electronics is currently generating about -0.12 per unit of risk. If you would invest  1,242  in Scandinavian Tobacco Group on December 22, 2024 and sell it today you would earn a total of  132.00  from holding Scandinavian Tobacco Group or generate 10.63% return on investment over 90 days.

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

Scandinavian Tobacco Group  vs.  Arrow Electronics

Scandinavian Tobacco

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Scandinavian Tobacco Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Scandinavian Tobacco may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Arrow Electronics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Arrow Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Scandinavian Tobacco and Arrow Electronics

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

The idea behind Scandinavian Tobacco Group and Arrow Electronics 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.