Correlation Between PT Bank and Scandinavian Tobacco

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

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

Diversification Opportunities for PT Bank and Scandinavian Tobacco

0.27

Correlation Coefficient

PT Bank  Scandinavian Tobacco

Modest diversification

The 3 months correlation between BOZA and Scandinavian is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding PT Bank Maybank and Scandinavian Tobacco Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scandinavian Tobacco and PT Bank 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 PT Bank Maybank 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 PT Bank i.e., PT Bank and Scandinavian Tobacco go up and down completely randomly.

Pair Corralation between PT Bank and Scandinavian Tobacco

Assuming the 90 days trading horizon PT Bank Maybank is expected to generate 3.36 times more return on investment than Scandinavian Tobacco. However, PT Bank is 3.36 times more volatile than Scandinavian Tobacco Group. It trades about 0.15 of its potential returns per unit of risk. Scandinavian Tobacco Group is currently generating about -0.1 per unit of risk. If you would invest  1.25  in PT Bank Maybank on September 20, 2024 and sell it today you would earn a total of  0.20  from holding PT Bank Maybank or generate 16.0% return on investment over 90 days.

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

PT Bank Maybank  vs.  Scandinavian Tobacco Group

PT Bank Maybank

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PT Bank Maybank are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, PT Bank reported solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with PT Bank and Scandinavian Tobacco

The main advantage of trading using opposite PT Bank and Scandinavian Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PT Bank 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 PT Bank Maybank 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.