Correlation Between New Residential and Scandinavian Tobacco

Can any of the company-specific risk be diversified away by investing in both New Residential and Scandinavian Tobacco 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 New Residential and Scandinavian Tobacco into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between New Residential Investment and Scandinavian Tobacco Group, you can compare the effects of market volatilities on New Residential and Scandinavian Tobacco 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 New Residential with a short position of Scandinavian Tobacco. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Residential and Scandinavian Tobacco.

Diversification Opportunities for New Residential and Scandinavian Tobacco

-0.44

Correlation Coefficient

New Residential  Scandinavian Tobacco

Very good diversification

The 3 months correlation between New and Scandinavian is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding New Residential Investment and Scandinavian Tobacco Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scandinavian Tobacco and New Residential 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 New Residential Investment are associated (or correlated) with Scandinavian Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scandinavian Tobacco has no effect on the direction of New Residential i.e., New Residential and Scandinavian Tobacco go up and down completely randomly.

Pair Corralation between New Residential and Scandinavian Tobacco

Assuming the 90 days trading horizon New Residential Investment is expected to generate 0.81 times more return on investment than Scandinavian Tobacco. However, New Residential Investment is 1.24 times less risky than Scandinavian Tobacco. It trades about -0.02 of its potential returns per unit of risk. Scandinavian Tobacco Group is currently generating about -0.11 per unit of risk. If you would invest  1,100  in New Residential Investment on September 25, 2024 and sell it today you would lose (17.00) from holding New Residential Investment or give up 1.55% of portfolio value over 90 days.

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

New Residential Investment  vs.  Scandinavian Tobacco Group

New Residential Inve

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days New Residential Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, New Residential is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

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 latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with New Residential and Scandinavian Tobacco

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

The idea behind New Residential Investment and Scandinavian Tobacco Group 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.