Correlation Between Insurance Australia and Scandinavian Tobacco

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

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

Diversification Opportunities for Insurance Australia and Scandinavian Tobacco

-0.46

Correlation Coefficient

Insurance Australia  Scandinavian Tobacco

Very good diversification

The 3 months correlation between Insurance and Scandinavian is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Insurance Australia Group and Scandinavian Tobacco Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scandinavian Tobacco and Insurance Australia 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 Insurance Australia Group 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 Insurance Australia i.e., Insurance Australia and Scandinavian Tobacco go up and down completely randomly.

Pair Corralation between Insurance Australia and Scandinavian Tobacco

Assuming the 90 days horizon Insurance Australia Group is expected to under-perform the Scandinavian Tobacco. In addition to that, Insurance Australia is 1.66 times more volatile than Scandinavian Tobacco Group. It trades about -0.08 of its total potential returns per unit of risk. Scandinavian Tobacco Group is currently generating about 0.13 per unit of volatility. If you would invest  1,248  in Scandinavian Tobacco Group on December 26, 2024 and sell it today you would earn a total of  132.00  from holding Scandinavian Tobacco Group or generate 10.58% return on investment over 90 days.

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

Insurance Australia Group  vs.  Scandinavian Tobacco Group

Insurance Australia

Risk-Adjusted Performance

Very Weak

Over the last 90 days Insurance Australia 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.

Scandinavian Tobacco

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Scandinavian Tobacco Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Scandinavian Tobacco may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Insurance Australia and Scandinavian Tobacco

The main advantage of trading using opposite Insurance Australia and Scandinavian Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Insurance Australia 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 Insurance Australia Group 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.