Correlation Between Scandinavian Tobacco and Compania Cervecerias

Can any of the company-specific risk be diversified away by investing in both Scandinavian Tobacco and Compania Cervecerias 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 Compania Cervecerias 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 Compania Cervecerias Unidas, you can compare the effects of market volatilities on Scandinavian Tobacco and Compania Cervecerias 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 Compania Cervecerias. Check out your portfolio center. Please also check ongoing floating volatility patterns of Scandinavian Tobacco and Compania Cervecerias.

Diversification Opportunities for Scandinavian Tobacco and Compania Cervecerias

0.41

Correlation Coefficient

Scandinavian Tobacco  Compania Cervecerias

Very weak diversification

The 3 months correlation between Scandinavian and Compania is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Scandinavian Tobacco Group and Compania Cervecerias Unidas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compania Cervecerias 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 Compania Cervecerias. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compania Cervecerias has no effect on the direction of Scandinavian Tobacco i.e., Scandinavian Tobacco and Compania Cervecerias go up and down completely randomly.

Pair Corralation between Scandinavian Tobacco and Compania Cervecerias

Assuming the 90 days horizon Scandinavian Tobacco Group is expected to under-perform the Compania Cervecerias. In addition to that, Scandinavian Tobacco is 1.68 times more volatile than Compania Cervecerias Unidas. It trades about -0.07 of its total potential returns per unit of risk. Compania Cervecerias Unidas is currently generating about 0.05 per unit of volatility. If you would invest  1,182  in Compania Cervecerias Unidas on January 28, 2024 and sell it today you would earn a total of  21.00  from holding Compania Cervecerias Unidas or generate 1.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Scandinavian Tobacco Group  vs.  Compania Cervecerias Unidas

Scandinavian Tobacco

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Scandinavian Tobacco Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical and fundamental indicators, Scandinavian Tobacco is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Compania Cervecerias

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Compania Cervecerias Unidas are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, Compania Cervecerias is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Scandinavian Tobacco and Compania Cervecerias

The main advantage of trading using opposite Scandinavian Tobacco and Compania Cervecerias positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Scandinavian Tobacco position performs unexpectedly, Compania Cervecerias 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 Compania Cervecerias will offset losses from the drop in Compania Cervecerias' long position.

The idea behind Scandinavian Tobacco Group and Compania Cervecerias Unidas 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.

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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .