Correlation Between Regions Financial and Scandinavian Tobacco

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

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

Diversification Opportunities for Regions Financial and Scandinavian Tobacco

-0.8

Correlation Coefficient

Regions Financial  Scandinavian Tobacco

Pay attention - limited upside

The 3 months correlation between Regions and Scandinavian is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Regions Financial and Scandinavian Tobacco Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scandinavian Tobacco and Regions Financial 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 Regions Financial 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 Regions Financial i.e., Regions Financial and Scandinavian Tobacco go up and down completely randomly.

Pair Corralation between Regions Financial and Scandinavian Tobacco

Assuming the 90 days horizon Regions Financial is expected to generate 0.72 times more return on investment than Scandinavian Tobacco. However, Regions Financial is 1.4 times less risky than Scandinavian Tobacco. It trades about -0.02 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  2,436  in Regions Financial on September 20, 2024 and sell it today you would lose (16.00) from holding Regions Financial or give up 0.66% of portfolio value over 90 days.

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

Regions Financial  vs.  Scandinavian Tobacco Group

Regions Financial

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Regions Financial are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Regions Financial 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 Regions Financial and Scandinavian Tobacco

The main advantage of trading using opposite Regions Financial and Scandinavian Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Regions Financial 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 Regions Financial 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.