Correlation Between Scandinavian Tobacco and Gildan Activewear

Can any of the company-specific risk be diversified away by investing in both Scandinavian Tobacco and Gildan Activewear 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 Gildan Activewear 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 Gildan Activewear, you can compare the effects of market volatilities on Scandinavian Tobacco and Gildan Activewear 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 Gildan Activewear. Check out your portfolio center. Please also check ongoing floating volatility patterns of Scandinavian Tobacco and Gildan Activewear.

Diversification Opportunities for Scandinavian Tobacco and Gildan Activewear

-0.07

Correlation Coefficient

Scandinavian Tobacco  Gildan Activewear

Good diversification

The 3 months correlation between Scandinavian and Gildan is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Scandinavian Tobacco Group and Gildan Activewear in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gildan Activewear 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 Gildan Activewear. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gildan Activewear has no effect on the direction of Scandinavian Tobacco i.e., Scandinavian Tobacco and Gildan Activewear go up and down completely randomly.

Pair Corralation between Scandinavian Tobacco and Gildan Activewear

Assuming the 90 days horizon Scandinavian Tobacco Group is expected to under-perform the Gildan Activewear. But the pink sheet apears to be less risky and, when comparing its historical volatility, Scandinavian Tobacco Group is 1.51 times less risky than Gildan Activewear. The pink sheet trades about -0.22 of its potential returns per unit of risk. The Gildan Activewear is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  4,784  in Gildan Activewear on October 9, 2024 and sell it today you would lose (74.00) from holding Gildan Activewear or give up 1.55% of portfolio value over 90 days.

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

Scandinavian Tobacco Group  vs.  Gildan Activewear

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 weak 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.

Gildan Activewear

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gildan Activewear has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward indicators, Gildan Activewear is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Scandinavian Tobacco and Gildan Activewear

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

The idea behind Scandinavian Tobacco Group and Gildan Activewear 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.