Correlation Between Tandy Leather and Scandinavian Tobacco

Can any of the company-specific risk be diversified away by investing in both Tandy Leather and Scandinavian Tobacco 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 Tandy Leather and Scandinavian Tobacco into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Tandy Leather Factory and Scandinavian Tobacco Group, you can compare the effects of market volatilities on Tandy Leather and Scandinavian Tobacco 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 Tandy Leather with a short position of Scandinavian Tobacco. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tandy Leather and Scandinavian Tobacco.

Diversification Opportunities for Tandy Leather and Scandinavian Tobacco

-0.43

Correlation Coefficient

Tandy Leather  Scandinavian Tobacco

Very good diversification

The 3 months correlation between Tandy and Scandinavian is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Tandy Leather Factory and Scandinavian Tobacco Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scandinavian Tobacco and Tandy Leather 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 Tandy Leather Factory are associated (or correlated) with Scandinavian Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scandinavian Tobacco has no effect on the direction of Tandy Leather i.e., Tandy Leather and Scandinavian Tobacco go up and down completely randomly.

Pair Corralation between Tandy Leather and Scandinavian Tobacco

Considering the 90-day investment horizon Tandy Leather is expected to generate 23.4 times less return on investment than Scandinavian Tobacco. But when comparing it to its historical volatility, Tandy Leather Factory is 4.59 times less risky than Scandinavian Tobacco. It trades about 0.01 of its potential returns per unit of risk. Scandinavian Tobacco Group is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,949  in Scandinavian Tobacco Group on October 24, 2024 and sell it today you would lose (570.00) from holding Scandinavian Tobacco Group or give up 29.25% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	68.56%
Values	Daily Returns

Tandy Leather Factory  vs.  Scandinavian Tobacco Group

Tandy Leather Factory

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tandy Leather Factory are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable essential indicators, Tandy Leather is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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 latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Tandy Leather and Scandinavian Tobacco

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

The idea behind Tandy Leather Factory and Scandinavian Tobacco Group 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.