Correlation Between Reservoir Media and Scandinavian Tobacco

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

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

Diversification Opportunities for Reservoir Media and Scandinavian Tobacco

-0.14

Correlation Coefficient

Reservoir Media  Scandinavian Tobacco

Good diversification

The 3 months correlation between Reservoir and Scandinavian is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Reservoir Media and Scandinavian Tobacco Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scandinavian Tobacco and Reservoir Media 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 Reservoir Media 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 Reservoir Media i.e., Reservoir Media and Scandinavian Tobacco go up and down completely randomly.

Pair Corralation between Reservoir Media and Scandinavian Tobacco

Given the investment horizon of 90 days Reservoir Media is expected to generate 1.78 times more return on investment than Scandinavian Tobacco. However, Reservoir Media is 1.78 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 -0.14 per unit of risk. If you would invest  855.00  in Reservoir Media on October 25, 2024 and sell it today you would lose (41.00) from holding Reservoir Media or give up 4.8% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Reservoir Media  vs.  Scandinavian Tobacco Group

Reservoir Media

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Reservoir Media has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Reservoir Media is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail 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. Despite latest unsteady 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 Reservoir Media and Scandinavian Tobacco

The main advantage of trading using opposite Reservoir Media and Scandinavian Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Reservoir Media 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 Reservoir Media 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.