Correlation Between Scandinavian Tobacco and Orsted AS

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

Diversification Opportunities for Scandinavian Tobacco and Orsted AS

-0.63

Correlation Coefficient

Scandinavian Tobacco  Orsted AS

Excellent diversification

The 3 months correlation between Scandinavian and Orsted is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Scandinavian Tobacco Group and Orsted AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orsted 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 Orsted AS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orsted AS has no effect on the direction of Scandinavian Tobacco i.e., Scandinavian Tobacco and Orsted AS go up and down completely randomly.

Pair Corralation between Scandinavian Tobacco and Orsted AS

Assuming the 90 days trading horizon Scandinavian Tobacco is expected to generate 2.89 times less return on investment than Orsted AS. But when comparing it to its historical volatility, Scandinavian Tobacco Group is 3.12 times less risky than Orsted AS. It trades about 0.43 of its potential returns per unit of risk. Orsted AS is currently generating about 0.4 of returns per unit of risk over similar time horizon. If you would invest  26,440  in Orsted AS on November 27, 2024 and sell it today you would earn a total of  4,970  from holding Orsted AS or generate 18.8% return on investment over 90 days.

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

Scandinavian Tobacco Group  vs.  Orsted AS

Scandinavian Tobacco

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Scandinavian Tobacco Group are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady technical and fundamental indicators, Scandinavian Tobacco may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Orsted AS

Risk-Adjusted Performance

Very Weak

Over the last 90 days Orsted AS 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 somewhat strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Scandinavian Tobacco and Orsted AS

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

The idea behind Scandinavian Tobacco Group and Orsted 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.

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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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.