Correlation Between Scandinavian Tobacco and Diversified Energy

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

Diversification Opportunities for Scandinavian Tobacco and Diversified Energy

-0.89
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between Scandinavian and Diversified is -0.89. Overlapping area represents the amount of risk that can be diversified away by holding Scandinavian Tobacco Group and Diversified Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diversified Energy 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 Diversified Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diversified Energy has no effect on the direction of Scandinavian Tobacco i.e., Scandinavian Tobacco and Diversified Energy go up and down completely randomly.

Pair Corralation between Scandinavian Tobacco and Diversified Energy

Assuming the 90 days trading horizon Scandinavian Tobacco is expected to generate 10.89 times less return on investment than Diversified Energy. But when comparing it to its historical volatility, Scandinavian Tobacco Group is 2.93 times less risky than Diversified Energy. It trades about 0.11 of its potential returns per unit of risk. Diversified Energy is currently generating about 0.39 of returns per unit of risk over similar time horizon. If you would invest  103,177  in Diversified Energy on September 14, 2024 and sell it today you would earn a total of  27,723  from holding Diversified Energy or generate 26.87% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Scandinavian Tobacco Group  vs.  Diversified Energy

 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.
Diversified Energy 

Risk-Adjusted Performance

22 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Diversified Energy are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Diversified Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

Scandinavian Tobacco and Diversified Energy Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Scandinavian Tobacco and Diversified Energy

The main advantage of trading using opposite Scandinavian Tobacco and Diversified Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Scandinavian Tobacco position performs unexpectedly, Diversified Energy 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 Diversified Energy will offset losses from the drop in Diversified Energy's long position.
The idea behind Scandinavian Tobacco Group and Diversified Energy 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.

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