Correlation Between Scandinavian Tobacco and SM Investments

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

Diversification Opportunities for Scandinavian Tobacco and SM Investments

-0.26

Correlation Coefficient

Scandinavian Tobacco  SM Investments

Very good diversification

The 3 months correlation between Scandinavian and SVTMF is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Scandinavian Tobacco Group and SM Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Investments 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 SM Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SM Investments has no effect on the direction of Scandinavian Tobacco i.e., Scandinavian Tobacco and SM Investments go up and down completely randomly.

Pair Corralation between Scandinavian Tobacco and SM Investments

Assuming the 90 days horizon Scandinavian Tobacco Group is expected to under-perform the SM Investments. In addition to that, Scandinavian Tobacco is 39.18 times more volatile than SM Investments. It trades about -0.1 of its total potential returns per unit of risk. SM Investments is currently generating about 0.13 per unit of volatility. If you would invest  1,550  in SM Investments on May 4, 2025 and sell it today you would earn a total of  4.00  from holding SM Investments or generate 0.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.88%
Values	Daily Returns

Scandinavian Tobacco Group  vs.  SM Investments

Scandinavian Tobacco

Risk-Adjusted Performance

Very Weak

Over the last 90 days Scandinavian Tobacco Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

SM Investments

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SM Investments are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable primary indicators, SM Investments is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Scandinavian Tobacco and SM Investments

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

The idea behind Scandinavian Tobacco Group and SM Investments 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..