Correlation Between International Consolidated and Scandinavian Tobacco
Can any of the company-specific risk be diversified away by investing in both International Consolidated 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 International Consolidated and Scandinavian Tobacco into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Consolidated Airlines and Scandinavian Tobacco Group, you can compare the effects of market volatilities on International Consolidated 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 International Consolidated with a short position of Scandinavian Tobacco. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Consolidated and Scandinavian Tobacco.
Diversification Opportunities for International Consolidated and Scandinavian Tobacco
-0.86 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between International and Scandinavian is -0.86. Overlapping area represents the amount of risk that can be diversified away by holding International Consolidated Air and Scandinavian Tobacco Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scandinavian Tobacco and International Consolidated 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 International Consolidated Airlines 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 International Consolidated i.e., International Consolidated and Scandinavian Tobacco go up and down completely randomly.
Pair Corralation between International Consolidated and Scandinavian Tobacco
Assuming the 90 days horizon International Consolidated is expected to generate 1.63 times less return on investment than Scandinavian Tobacco. But when comparing it to its historical volatility, International Consolidated Airlines is 2.77 times less risky than Scandinavian Tobacco. It trades about 0.1 of its potential returns per unit of risk. Scandinavian Tobacco Group is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 442.00 in Scandinavian Tobacco Group on September 13, 2024 and sell it today you would earn a total of 828.00 from holding Scandinavian Tobacco Group or generate 187.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
International Consolidated Air vs. Scandinavian Tobacco Group
Performance |
| Timeline |
| International Consolidated |
| Scandinavian Tobacco |
International Consolidated and Scandinavian Tobacco Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Consolidated and Scandinavian Tobacco
The main advantage of trading using opposite International Consolidated and Scandinavian Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Consolidated 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.The idea behind International Consolidated Airlines and Scandinavian Tobacco Group 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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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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