Correlation Between Scandinavian Tobacco and National Beverage

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

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

Diversification Opportunities for Scandinavian Tobacco and National Beverage

0.08

Correlation Coefficient

Scandinavian Tobacco  National Beverage

Significant diversification

The 3 months correlation between Scandinavian and National is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Scandinavian Tobacco Group and National Beverage Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Beverage Corp and Scandinavian Tobacco 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 Scandinavian Tobacco Group are associated (or correlated) with National Beverage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Beverage Corp has no effect on the direction of Scandinavian Tobacco i.e., Scandinavian Tobacco and National Beverage go up and down completely randomly.

Pair Corralation between Scandinavian Tobacco and National Beverage

Assuming the 90 days horizon Scandinavian Tobacco Group is expected to generate 0.62 times more return on investment than National Beverage. However, Scandinavian Tobacco Group is 1.6 times less risky than National Beverage. It trades about -0.22 of its potential returns per unit of risk. National Beverage Corp is currently generating about -0.34 per unit of risk. If you would invest  1,386  in Scandinavian Tobacco Group on October 12, 2024 and sell it today you would lose (41.00) from holding Scandinavian Tobacco Group or give up 2.96% of portfolio value over 90 days.

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

Scandinavian Tobacco Group  vs.  National Beverage Corp

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.

National Beverage Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Beverage Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, National Beverage is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Scandinavian Tobacco and National Beverage

The main advantage of trading using opposite Scandinavian Tobacco and National Beverage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Scandinavian Tobacco position performs unexpectedly, National Beverage 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 National Beverage will offset losses from the drop in National Beverage's long position.

The idea behind Scandinavian Tobacco Group and National Beverage Corp 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.