Correlation Between Scandinavian Tobacco and Compagnie Plastic

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

Diversification Opportunities for Scandinavian Tobacco and Compagnie Plastic

-0.32
  Correlation Coefficient

Very good diversification

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

Pair Corralation between Scandinavian Tobacco and Compagnie Plastic

Assuming the 90 days trading horizon Scandinavian Tobacco Group is expected to generate 0.63 times more return on investment than Compagnie Plastic. However, Scandinavian Tobacco Group is 1.6 times less risky than Compagnie Plastic. It trades about -0.01 of its potential returns per unit of risk. Compagnie Plastic Omnium is currently generating about -0.01 per unit of risk. If you would invest  10,911  in Scandinavian Tobacco Group on September 24, 2024 and sell it today you would lose (1,511) from holding Scandinavian Tobacco Group or give up 13.85% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy99.8%
ValuesDaily Returns

Scandinavian Tobacco Group  vs.  Compagnie Plastic Omnium

 Performance 
       Timeline  
Scandinavian Tobacco 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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 unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.
Compagnie Plastic Omnium 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Compagnie Plastic Omnium are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Compagnie Plastic unveiled solid returns over the last few months and may actually be approaching a breakup point.

Scandinavian Tobacco and Compagnie Plastic Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Scandinavian Tobacco and Compagnie Plastic

The main advantage of trading using opposite Scandinavian Tobacco and Compagnie Plastic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Scandinavian Tobacco position performs unexpectedly, Compagnie Plastic 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 Compagnie Plastic will offset losses from the drop in Compagnie Plastic's long position.
The idea behind Scandinavian Tobacco Group and Compagnie Plastic Omnium 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.

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