Correlation Between UMC Electronics and Scandinavian Tobacco

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

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

Diversification Opportunities for UMC Electronics and Scandinavian Tobacco

0.7

Correlation Coefficient

UMC Electronics  Scandinavian Tobacco

Poor diversification

The 3 months correlation between UMC and Scandinavian is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding UMC Electronics Co and Scandinavian Tobacco Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scandinavian Tobacco and UMC Electronics 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 UMC Electronics Co 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 UMC Electronics i.e., UMC Electronics and Scandinavian Tobacco go up and down completely randomly.

Pair Corralation between UMC Electronics and Scandinavian Tobacco

Assuming the 90 days horizon UMC Electronics is expected to generate 1.26 times less return on investment than Scandinavian Tobacco. In addition to that, UMC Electronics is 2.47 times more volatile than Scandinavian Tobacco Group. It trades about 0.04 of its total potential returns per unit of risk. Scandinavian Tobacco Group is currently generating about 0.13 per unit of volatility. If you would invest  1,242  in Scandinavian Tobacco Group on December 21, 2024 and sell it today you would earn a total of  136.00  from holding Scandinavian Tobacco Group or generate 10.95% return on investment over 90 days.

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

UMC Electronics Co  vs.  Scandinavian Tobacco Group

UMC Electronics

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in UMC Electronics Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, UMC Electronics may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Scandinavian Tobacco

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Scandinavian Tobacco Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Scandinavian Tobacco may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with UMC Electronics and Scandinavian Tobacco

The main advantage of trading using opposite UMC Electronics and Scandinavian Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if UMC Electronics 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 UMC Electronics Co 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.

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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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.