Correlation Between NETGEAR and Scandinavian Tobacco

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

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

Diversification Opportunities for NETGEAR and Scandinavian Tobacco

-0.89

Correlation Coefficient

NETGEAR  Scandinavian Tobacco

Pay attention - limited upside

The 3 months correlation between NETGEAR and Scandinavian is -0.89. Overlapping area represents the amount of risk that can be diversified away by holding NETGEAR and Scandinavian Tobacco Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scandinavian Tobacco and NETGEAR 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 NETGEAR 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 NETGEAR i.e., NETGEAR and Scandinavian Tobacco go up and down completely randomly.

Pair Corralation between NETGEAR and Scandinavian Tobacco

Given the investment horizon of 90 days NETGEAR is expected to generate 2.72 times less return on investment than Scandinavian Tobacco. But when comparing it to its historical volatility, NETGEAR is 3.25 times less risky than Scandinavian Tobacco. It trades about 0.04 of its potential returns per unit of risk. Scandinavian Tobacco Group is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,949  in Scandinavian Tobacco Group on October 11, 2024 and sell it today you would lose (604.00) from holding Scandinavian Tobacco Group or give up 30.99% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	68.28%
Values	Daily Returns

NETGEAR  vs.  Scandinavian Tobacco Group

NETGEAR

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in NETGEAR are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent technical and fundamental indicators, NETGEAR 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 unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with NETGEAR and Scandinavian Tobacco

The main advantage of trading using opposite NETGEAR and Scandinavian Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NETGEAR 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 NETGEAR 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.

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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.