Correlation Between Novo Nordisk and Scandinavian Tobacco

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

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

Diversification Opportunities for Novo Nordisk and Scandinavian Tobacco

0.67

Correlation Coefficient

Novo Nordisk  Scandinavian Tobacco

Poor diversification

The 3 months correlation between Novo and Scandinavian is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Novo Nordisk AS and Scandinavian Tobacco Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scandinavian Tobacco and Novo Nordisk 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 Novo Nordisk AS 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 Novo Nordisk i.e., Novo Nordisk and Scandinavian Tobacco go up and down completely randomly.

Pair Corralation between Novo Nordisk and Scandinavian Tobacco

Assuming the 90 days trading horizon Novo Nordisk AS is expected to generate 1.09 times more return on investment than Scandinavian Tobacco. However, Novo Nordisk is 1.09 times more volatile than Scandinavian Tobacco Group. It trades about 0.02 of its potential returns per unit of risk. Scandinavian Tobacco Group is currently generating about -0.19 per unit of risk. If you would invest  75,260  in Novo Nordisk AS on September 3, 2024 and sell it today you would earn a total of  470.00  from holding Novo Nordisk AS or generate 0.62% return on investment over 90 days.

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

Novo Nordisk AS  vs.  Scandinavian Tobacco Group

Novo Nordisk AS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Novo Nordisk AS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain somewhat 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 latest unsteady performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Novo Nordisk and Scandinavian Tobacco

The main advantage of trading using opposite Novo Nordisk and Scandinavian Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Novo Nordisk 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 Novo Nordisk AS 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 Valuation module to check real value of public entities based on technical and fundamental data.