Correlation Between Scandinavian Tobacco and Philip Morris

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

Diversification Opportunities for Scandinavian Tobacco and Philip Morris

-0.15

Correlation Coefficient

Scandinavian Tobacco  Philip Morris

Good diversification

The 3 months correlation between Scandinavian and Philip is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Scandinavian Tobacco Group and Philip Morris International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Philip Morris Intern 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 Philip Morris. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Philip Morris Intern has no effect on the direction of Scandinavian Tobacco i.e., Scandinavian Tobacco and Philip Morris go up and down completely randomly.

Pair Corralation between Scandinavian Tobacco and Philip Morris

Assuming the 90 days horizon Scandinavian Tobacco Group is expected to under-perform the Philip Morris. But the pink sheet apears to be less risky and, when comparing its historical volatility, Scandinavian Tobacco Group is 1.42 times less risky than Philip Morris. The pink sheet trades about -0.17 of its potential returns per unit of risk. The Philip Morris International is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  11,886  in Philip Morris International on October 9, 2024 and sell it today you would earn a total of  254.00  from holding Philip Morris International or generate 2.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.88%
Values	Daily Returns

Scandinavian Tobacco Group  vs.  Philip Morris International

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.

Philip Morris Intern

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Philip Morris International are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy primary indicators, Philip Morris is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Scandinavian Tobacco and Philip Morris

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

The idea behind Scandinavian Tobacco Group and Philip Morris International 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.