Correlation Between Scandinavian Tobacco and SOUTHWEST AIRLINES
Can any of the company-specific risk be diversified away by investing in both Scandinavian Tobacco and SOUTHWEST AIRLINES 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 SOUTHWEST AIRLINES 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 SOUTHWEST AIRLINES, you can compare the effects of market volatilities on Scandinavian Tobacco and SOUTHWEST AIRLINES 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 SOUTHWEST AIRLINES. Check out your portfolio center. Please also check ongoing floating volatility patterns of Scandinavian Tobacco and SOUTHWEST AIRLINES.
Diversification Opportunities for Scandinavian Tobacco and SOUTHWEST AIRLINES
-0.66 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Scandinavian and SOUTHWEST is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Scandinavian Tobacco Group and SOUTHWEST AIRLINES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SOUTHWEST AIRLINES 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 SOUTHWEST AIRLINES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SOUTHWEST AIRLINES has no effect on the direction of Scandinavian Tobacco i.e., Scandinavian Tobacco and SOUTHWEST AIRLINES go up and down completely randomly.
Pair Corralation between Scandinavian Tobacco and SOUTHWEST AIRLINES
Assuming the 90 days horizon Scandinavian Tobacco Group is expected to under-perform the SOUTHWEST AIRLINES. In addition to that, Scandinavian Tobacco is 1.23 times more volatile than SOUTHWEST AIRLINES. It trades about -0.11 of its total potential returns per unit of risk. SOUTHWEST AIRLINES is currently generating about 0.22 per unit of volatility. If you would invest 2,796 in SOUTHWEST AIRLINES on August 27, 2024 and sell it today you would earn a total of 263.00 from holding SOUTHWEST AIRLINES or generate 9.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Scandinavian Tobacco Group vs. SOUTHWEST AIRLINES
Performance |
| Timeline |
| Scandinavian Tobacco |
| SOUTHWEST AIRLINES |
Scandinavian Tobacco and SOUTHWEST AIRLINES Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Scandinavian Tobacco and SOUTHWEST AIRLINES
The main advantage of trading using opposite Scandinavian Tobacco and SOUTHWEST AIRLINES positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Scandinavian Tobacco position performs unexpectedly, SOUTHWEST AIRLINES 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 SOUTHWEST AIRLINES will offset losses from the drop in SOUTHWEST AIRLINES's long position.| Scandinavian Tobacco vs. Philip Morris International | Scandinavian Tobacco vs. British American Tobacco | Scandinavian Tobacco vs. British American Tobacco | Scandinavian Tobacco vs. British American Tobacco |
| SOUTHWEST AIRLINES vs. Penn National Gaming | SOUTHWEST AIRLINES vs. Boyd Gaming | SOUTHWEST AIRLINES vs. Hochschild Mining plc | SOUTHWEST AIRLINES vs. Scandinavian Tobacco Group |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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