Correlation Between Scandinavian Tobacco and ZTE
Can any of the company-specific risk be diversified away by investing in both Scandinavian Tobacco and ZTE 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 ZTE 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 ZTE Corporation, you can compare the effects of market volatilities on Scandinavian Tobacco and ZTE 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 ZTE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Scandinavian Tobacco and ZTE.
Diversification Opportunities for Scandinavian Tobacco and ZTE
-0.37 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Scandinavian and ZTE is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Scandinavian Tobacco Group and ZTE Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ZTE Corporation 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 ZTE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ZTE Corporation has no effect on the direction of Scandinavian Tobacco i.e., Scandinavian Tobacco and ZTE go up and down completely randomly.
Pair Corralation between Scandinavian Tobacco and ZTE
Assuming the 90 days horizon Scandinavian Tobacco Group is expected to generate 1.24 times more return on investment than ZTE. However, Scandinavian Tobacco is 1.24 times more volatile than ZTE Corporation. It trades about 0.05 of its potential returns per unit of risk. ZTE Corporation is currently generating about 0.03 per unit of risk. If you would invest 737.00 in Scandinavian Tobacco Group on August 31, 2024 and sell it today you would earn a total of 555.00 from holding Scandinavian Tobacco Group or generate 75.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Scandinavian Tobacco Group vs. ZTE Corp.
Performance |
| Timeline |
| Scandinavian Tobacco |
| ZTE Corporation |
Scandinavian Tobacco and ZTE Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Scandinavian Tobacco and ZTE
The main advantage of trading using opposite Scandinavian Tobacco and ZTE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Scandinavian Tobacco position performs unexpectedly, ZTE 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 ZTE will offset losses from the drop in ZTE's long position.The idea behind Scandinavian Tobacco Group and ZTE Corporation 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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