Correlation Between Scandinavian Tobacco and Essential Utilities

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

Diversification Opportunities for Scandinavian Tobacco and Essential Utilities

0.09

Correlation Coefficient

Scandinavian Tobacco  Essential Utilities

Significant diversification

The 3 months correlation between Scandinavian and Essential is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Scandinavian Tobacco Group and Essential Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essential Utilities 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 Essential Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essential Utilities has no effect on the direction of Scandinavian Tobacco i.e., Scandinavian Tobacco and Essential Utilities go up and down completely randomly.

Pair Corralation between Scandinavian Tobacco and Essential Utilities

Assuming the 90 days horizon Scandinavian Tobacco Group is expected to under-perform the Essential Utilities. But the pink sheet apears to be less risky and, when comparing its historical volatility, Scandinavian Tobacco Group is 1.21 times less risky than Essential Utilities. The pink sheet trades about -0.28 of its potential returns per unit of risk. The Essential Utilities is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  4,022  in Essential Utilities on August 19, 2024 and sell it today you would lose (162.00) from holding Essential Utilities or give up 4.03% of portfolio value over 90 days.

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

Scandinavian Tobacco Group  vs.  Essential Utilities

Scandinavian Tobacco

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Scandinavian Tobacco Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Scandinavian Tobacco is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Essential Utilities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Essential Utilities has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Essential Utilities is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Scandinavian Tobacco and Essential Utilities

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

The idea behind Scandinavian Tobacco Group and Essential Utilities 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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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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.