Correlation Between Scandinavian Tobacco and Skjern Bank

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

Diversification Opportunities for Scandinavian Tobacco and Skjern Bank

-0.32

Correlation Coefficient

Scandinavian Tobacco  Skjern Bank

Very good diversification

The 3 months correlation between Scandinavian and Skjern is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Scandinavian Tobacco Group and Skjern Bank AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Skjern Bank 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 Skjern Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Skjern Bank AS has no effect on the direction of Scandinavian Tobacco i.e., Scandinavian Tobacco and Skjern Bank go up and down completely randomly.

Pair Corralation between Scandinavian Tobacco and Skjern Bank

Assuming the 90 days trading horizon Scandinavian Tobacco Group is expected to under-perform the Skjern Bank. But the stock apears to be less risky and, when comparing its historical volatility, Scandinavian Tobacco Group is 1.65 times less risky than Skjern Bank. The stock trades about -0.09 of its potential returns per unit of risk. The Skjern Bank AS is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  17,050  in Skjern Bank AS on October 14, 2024 and sell it today you would earn a total of  3,250  from holding Skjern Bank AS or generate 19.06% return on investment over 90 days.

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

Scandinavian Tobacco Group  vs.  Skjern Bank 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 latest weak performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Skjern Bank AS

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Skjern Bank AS are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Skjern Bank displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Scandinavian Tobacco and Skjern Bank

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

The idea behind Scandinavian Tobacco Group and Skjern Bank 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.