Correlation Between London Security and Scandic Hotels
Can any of the company-specific risk be diversified away by investing in both London Security and Scandic Hotels 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 London Security and Scandic Hotels into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between London Security Plc and Scandic Hotels Group, you can compare the effects of market volatilities on London Security and Scandic Hotels 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 London Security with a short position of Scandic Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of London Security and Scandic Hotels.
Diversification Opportunities for London Security and Scandic Hotels
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between London and Scandic is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding London Security Plc and Scandic Hotels Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scandic Hotels Group and London Security 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 London Security Plc are associated (or correlated) with Scandic Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scandic Hotels Group has no effect on the direction of London Security i.e., London Security and Scandic Hotels go up and down completely randomly.
Pair Corralation between London Security and Scandic Hotels
Assuming the 90 days trading horizon London Security is expected to generate 2.53 times less return on investment than Scandic Hotels. But when comparing it to its historical volatility, London Security Plc is 1.28 times less risky than Scandic Hotels. It trades about 0.03 of its potential returns per unit of risk. Scandic Hotels Group is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 3,911 in Scandic Hotels Group on October 13, 2024 and sell it today you would earn a total of 2,759 from holding Scandic Hotels Group or generate 70.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
London Security Plc vs. Scandic Hotels Group
Performance |
| Timeline |
| London Security Plc |
| Scandic Hotels Group |
London Security and Scandic Hotels Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with London Security and Scandic Hotels
The main advantage of trading using opposite London Security and Scandic Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if London Security position performs unexpectedly, Scandic Hotels 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 Scandic Hotels will offset losses from the drop in Scandic Hotels' long position.| London Security vs. Virgin Wines UK | London Security vs. URU Metals | London Security vs. Gaztransport et Technigaz | London Security vs. Vitec Software Group |
| Scandic Hotels vs. Finnair Oyj | Scandic Hotels vs. Cornish Metals | Scandic Hotels vs. Europa Metals | Scandic Hotels vs. Alaska Air 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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