Correlation Between Willamette Valley and Scandinavian Tobacco

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

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

Diversification Opportunities for Willamette Valley and Scandinavian Tobacco

-0.36

Correlation Coefficient

Willamette Valley  Scandinavian Tobacco

Very good diversification

The 3 months correlation between Willamette and Scandinavian is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Willamette Valley Vineyards and Scandinavian Tobacco Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scandinavian Tobacco and Willamette Valley 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 Willamette Valley Vineyards 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 Willamette Valley i.e., Willamette Valley and Scandinavian Tobacco go up and down completely randomly.

Pair Corralation between Willamette Valley and Scandinavian Tobacco

Assuming the 90 days horizon Willamette Valley Vineyards is expected to under-perform the Scandinavian Tobacco. In addition to that, Willamette Valley is 1.83 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 0.24 per unit of volatility. If you would invest  1,345  in Scandinavian Tobacco Group on December 25, 2024 and sell it today you would earn a total of  240.00  from holding Scandinavian Tobacco Group or generate 17.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	93.65%
Values	Daily Returns

Willamette Valley Vineyards  vs.  Scandinavian Tobacco Group

Willamette Valley

Risk-Adjusted Performance

Very Weak

Over the last 90 days Willamette Valley Vineyards has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward indicators, Willamette Valley is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Scandinavian Tobacco

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Scandinavian Tobacco Group are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Scandinavian Tobacco reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Willamette Valley and Scandinavian Tobacco

The main advantage of trading using opposite Willamette Valley and Scandinavian Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Willamette Valley 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 Willamette Valley Vineyards 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.