Correlation Between Scandinavian Tobacco and Kaival Brands

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

Diversification Opportunities for Scandinavian Tobacco and Kaival Brands

0.6

Correlation Coefficient

Scandinavian Tobacco  Kaival Brands

Poor diversification

The 3 months correlation between Scandinavian and Kaival is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Scandinavian Tobacco Group and Kaival Brands Innovations in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kaival Brands Innovations 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 Kaival Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kaival Brands Innovations has no effect on the direction of Scandinavian Tobacco i.e., Scandinavian Tobacco and Kaival Brands go up and down completely randomly.

Pair Corralation between Scandinavian Tobacco and Kaival Brands

Assuming the 90 days horizon Scandinavian Tobacco is expected to generate 9.0 times less return on investment than Kaival Brands. But when comparing it to its historical volatility, Scandinavian Tobacco Group is 12.09 times less risky than Kaival Brands. It trades about 0.03 of its potential returns per unit of risk. Kaival Brands Innovations is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,911  in Kaival Brands Innovations on September 25, 2024 and sell it today you would lose (1,828) from holding Kaival Brands Innovations or give up 95.66% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Scandinavian Tobacco Group  vs.  Kaival Brands Innovations

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. In spite of fairly strong technical and fundamental indicators, Scandinavian Tobacco is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Kaival Brands Innovations

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kaival Brands Innovations has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Scandinavian Tobacco and Kaival Brands

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

The idea behind Scandinavian Tobacco Group and Kaival Brands Innovations 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.