Correlation Between Scandinavian Tobacco and Hydract AS

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

Diversification Opportunities for Scandinavian Tobacco and Hydract AS

-0.53

Correlation Coefficient

Scandinavian Tobacco  Hydract AS

Excellent diversification

The 3 months correlation between Scandinavian and Hydract is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Scandinavian Tobacco Group and Hydract AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hydract AS 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 Hydract AS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hydract AS has no effect on the direction of Scandinavian Tobacco i.e., Scandinavian Tobacco and Hydract AS go up and down completely randomly.

Pair Corralation between Scandinavian Tobacco and Hydract AS

Assuming the 90 days trading horizon Scandinavian Tobacco is expected to generate 4.88 times less return on investment than Hydract AS. But when comparing it to its historical volatility, Scandinavian Tobacco Group is 8.93 times less risky than Hydract AS. It trades about 0.33 of its potential returns per unit of risk. Hydract AS is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  49.00  in Hydract AS on October 23, 2024 and sell it today you would earn a total of  11.00  from holding Hydract AS or generate 22.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Scandinavian Tobacco Group  vs.  Hydract AS

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 very healthy technical and fundamental indicators, Scandinavian Tobacco is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Hydract AS

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hydract AS are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Hydract AS sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Scandinavian Tobacco and Hydract AS

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

The idea behind Scandinavian Tobacco Group and Hydract AS 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.