Correlation Between East Africa and Scandinavian Tobacco
Can any of the company-specific risk be diversified away by investing in both East Africa and Scandinavian Tobacco 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 East Africa and Scandinavian Tobacco into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between East Africa Metals and Scandinavian Tobacco Group, you can compare the effects of market volatilities on East Africa and Scandinavian Tobacco 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 East Africa with a short position of Scandinavian Tobacco. Check out your portfolio center. Please also check ongoing floating volatility patterns of East Africa and Scandinavian Tobacco.
Diversification Opportunities for East Africa and Scandinavian Tobacco
-0.02 | Correlation Coefficient |
Good diversification
The 3 months correlation between East and Scandinavian is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding East Africa Metals and Scandinavian Tobacco Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scandinavian Tobacco and East Africa 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 East Africa Metals are associated (or correlated) with Scandinavian Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scandinavian Tobacco has no effect on the direction of East Africa i.e., East Africa and Scandinavian Tobacco go up and down completely randomly.
Pair Corralation between East Africa and Scandinavian Tobacco
Assuming the 90 days horizon East Africa Metals is expected to generate 40.79 times more return on investment than Scandinavian Tobacco. However, East Africa is 40.79 times more volatile than Scandinavian Tobacco Group. It trades about 0.09 of its potential returns per unit of risk. Scandinavian Tobacco Group is currently generating about 0.03 per unit of risk. If you would invest 9.15 in East Africa Metals on August 31, 2024 and sell it today you would earn a total of 1.85 from holding East Africa Metals or generate 20.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
East Africa Metals vs. Scandinavian Tobacco Group
Performance |
| Timeline |
| East Africa Metals |
| Scandinavian Tobacco |
East Africa and Scandinavian Tobacco Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with East Africa and Scandinavian Tobacco
The main advantage of trading using opposite East Africa and Scandinavian Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if East Africa position performs unexpectedly, Scandinavian Tobacco 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 Scandinavian Tobacco will offset losses from the drop in Scandinavian Tobacco's long position.| East Africa vs. South32 Limited | East Africa vs. NioCorp Developments Ltd | East Africa vs. HUMANA INC | East Africa vs. SCOR PK |
| Scandinavian Tobacco vs. Universal | Scandinavian Tobacco vs. Imperial Brands PLC | Scandinavian Tobacco vs. Japan Tobacco ADR | Scandinavian Tobacco vs. Philip Morris International |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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