Correlation Between Coty and Scandinavian Tobacco

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

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

Diversification Opportunities for Coty and Scandinavian Tobacco

0.53

Correlation Coefficient

Coty  Scandinavian Tobacco

Very weak diversification

The 3 months correlation between Coty and Scandinavian is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Coty Inc and Scandinavian Tobacco Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scandinavian Tobacco and Coty 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 Coty Inc 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 Coty i.e., Coty and Scandinavian Tobacco go up and down completely randomly.

Pair Corralation between Coty and Scandinavian Tobacco

Given the investment horizon of 90 days Coty Inc is expected to under-perform the Scandinavian Tobacco. In addition to that, Coty is 1.23 times more volatile than Scandinavian Tobacco Group. It trades about -0.01 of its total potential returns per unit of risk. Scandinavian Tobacco Group is currently generating about 0.03 per unit of volatility. If you would invest  608.00  in Scandinavian Tobacco Group on September 25, 2024 and sell it today you would earn a total of  108.00  from holding Scandinavian Tobacco Group or generate 17.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Coty Inc  vs.  Scandinavian Tobacco Group

Coty Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Coty Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

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 fairly strong technical and fundamental indicators, Scandinavian Tobacco is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Coty and Scandinavian Tobacco

The main advantage of trading using opposite Coty and Scandinavian Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coty 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 Coty Inc 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.