Correlation Between Scandinavian Tobacco and Diageo PLC
Can any of the company-specific risk be diversified away by investing in both Scandinavian Tobacco and Diageo PLC 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 Diageo PLC 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 Diageo PLC ADR, you can compare the effects of market volatilities on Scandinavian Tobacco and Diageo PLC 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 Diageo PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Scandinavian Tobacco and Diageo PLC.
Diversification Opportunities for Scandinavian Tobacco and Diageo PLC
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Scandinavian and Diageo is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Scandinavian Tobacco Group and Diageo PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo PLC ADR 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 Diageo PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diageo PLC ADR has no effect on the direction of Scandinavian Tobacco i.e., Scandinavian Tobacco and Diageo PLC go up and down completely randomly.
Pair Corralation between Scandinavian Tobacco and Diageo PLC
Assuming the 90 days horizon Scandinavian Tobacco Group is expected to generate 1.36 times more return on investment than Diageo PLC. However, Scandinavian Tobacco is 1.36 times more volatile than Diageo PLC ADR. It trades about 0.02 of its potential returns per unit of risk. Diageo PLC ADR is currently generating about -0.05 per unit of risk. If you would invest 664.00 in Scandinavian Tobacco Group on August 31, 2024 and sell it today you would earn a total of 52.00 from holding Scandinavian Tobacco Group or generate 7.83% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.73% |
| Values | Daily Returns |
Scandinavian Tobacco Group vs. Diageo PLC ADR
Performance |
| Timeline |
| Scandinavian Tobacco |
| Diageo PLC ADR |
Scandinavian Tobacco and Diageo PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Scandinavian Tobacco and Diageo PLC
The main advantage of trading using opposite Scandinavian Tobacco and Diageo PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Scandinavian Tobacco position performs unexpectedly, Diageo PLC 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 Diageo PLC will offset losses from the drop in Diageo PLC's long position.| Scandinavian Tobacco vs. Universal | Scandinavian Tobacco vs. Imperial Brands PLC | Scandinavian Tobacco vs. Japan Tobacco ADR | Scandinavian Tobacco vs. Philip Morris International |
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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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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