Correlation Between Scandinavian Tobacco and DAIRY FARM

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

Diversification Opportunities for Scandinavian Tobacco and DAIRY FARM

-0.64

Correlation Coefficient

Scandinavian Tobacco  DAIRY FARM

Excellent diversification

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

Pair Corralation between Scandinavian Tobacco and DAIRY FARM

Assuming the 90 days horizon Scandinavian Tobacco Group is expected to generate 1.0 times more return on investment than DAIRY FARM. However, Scandinavian Tobacco Group is 1.0 times less risky than DAIRY FARM. It trades about -0.14 of its potential returns per unit of risk. DAIRY FARM INTL is currently generating about -0.15 per unit of risk. If you would invest  1,302  in Scandinavian Tobacco Group on September 28, 2024 and sell it today you would lose (60.00) from holding Scandinavian Tobacco Group or give up 4.61% of portfolio value over 90 days.

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

Scandinavian Tobacco Group  vs.  DAIRY FARM INTL

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. 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.

DAIRY FARM INTL

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in DAIRY FARM INTL are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, DAIRY FARM unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Scandinavian Tobacco and DAIRY FARM

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

The idea behind Scandinavian Tobacco Group and DAIRY FARM INTL 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.