Correlation Between British American and Scandic Hotels
Can any of the company-specific risk be diversified away by investing in both British American and Scandic Hotels 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 British American and Scandic Hotels into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between British American Tobacco and Scandic Hotels Group, you can compare the effects of market volatilities on British American and Scandic Hotels 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 British American with a short position of Scandic Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of British American and Scandic Hotels.
Diversification Opportunities for British American and Scandic Hotels
-0.62 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between British and Scandic is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and Scandic Hotels Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scandic Hotels Group and British American 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 British American Tobacco are associated (or correlated) with Scandic Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scandic Hotels Group has no effect on the direction of British American i.e., British American and Scandic Hotels go up and down completely randomly.
Pair Corralation between British American and Scandic Hotels
Assuming the 90 days trading horizon British American Tobacco is expected to under-perform the Scandic Hotels. But the stock apears to be less risky and, when comparing its historical volatility, British American Tobacco is 1.14 times less risky than Scandic Hotels. The stock trades about -0.04 of its potential returns per unit of risk. The Scandic Hotels Group is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 6,541 in Scandic Hotels Group on September 24, 2024 and sell it today you would earn a total of 227.00 from holding Scandic Hotels Group or generate 3.47% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
British American Tobacco vs. Scandic Hotels Group
Performance |
| Timeline |
| British American Tobacco |
| Scandic Hotels Group |
British American and Scandic Hotels Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with British American and Scandic Hotels
The main advantage of trading using opposite British American and Scandic Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if British American position performs unexpectedly, Scandic Hotels 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 Scandic Hotels will offset losses from the drop in Scandic Hotels' long position.| British American vs. Qurate Retail Series | British American vs. Teradata Corp | British American vs. Vulcan Materials Co | British American vs. Electronic Arts |
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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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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