Correlation Between Scandinavian Tobacco and Southern Copper

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

Diversification Opportunities for Scandinavian Tobacco and Southern Copper

-0.42

Correlation Coefficient

Scandinavian Tobacco  Southern Copper

Very good diversification

The 3 months correlation between Scandinavian and Southern is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Scandinavian Tobacco Group and Southern Copper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern Copper 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 Southern Copper. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern Copper has no effect on the direction of Scandinavian Tobacco i.e., Scandinavian Tobacco and Southern Copper go up and down completely randomly.

Pair Corralation between Scandinavian Tobacco and Southern Copper

Assuming the 90 days horizon Scandinavian Tobacco Group is expected to generate 0.58 times more return on investment than Southern Copper. However, Scandinavian Tobacco Group is 1.71 times less risky than Southern Copper. It trades about 0.18 of its potential returns per unit of risk. Southern Copper is currently generating about -0.12 per unit of risk. If you would invest  1,282  in Scandinavian Tobacco Group on December 11, 2024 and sell it today you would earn a total of  158.00  from holding Scandinavian Tobacco Group or generate 12.32% return on investment over 90 days.

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

Scandinavian Tobacco Group  vs.  Southern Copper

Scandinavian Tobacco

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Scandinavian Tobacco Group are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Scandinavian Tobacco reported solid returns over the last few months and may actually be approaching a breakup point.

Southern Copper

Risk-Adjusted Performance

Very Weak

Over the last 90 days Southern Copper has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Scandinavian Tobacco and Southern Copper

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

The idea behind Scandinavian Tobacco Group and Southern Copper 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.

Check out your portfolio center.

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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.