Correlation Between Herald Investment and Scandinavian Tobacco

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

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

Diversification Opportunities for Herald Investment and Scandinavian Tobacco

-0.66

Correlation Coefficient

Herald Investment  Scandinavian Tobacco

Excellent diversification

The 3 months correlation between Herald and Scandinavian is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Herald Investment Trust and Scandinavian Tobacco Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scandinavian Tobacco and Herald Investment 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 Herald Investment Trust 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 Herald Investment i.e., Herald Investment and Scandinavian Tobacco go up and down completely randomly.

Pair Corralation between Herald Investment and Scandinavian Tobacco

Assuming the 90 days trading horizon Herald Investment Trust is expected to generate 0.8 times more return on investment than Scandinavian Tobacco. However, Herald Investment Trust is 1.25 times less risky than Scandinavian Tobacco. It trades about 0.15 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  215,000  in Herald Investment Trust on August 31, 2024 and sell it today you would earn a total of  21,000  from holding Herald Investment Trust or generate 9.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

Herald Investment Trust  vs.  Scandinavian Tobacco Group

Herald Investment Trust

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Herald Investment Trust are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Herald Investment may actually be approaching a critical reversion point that can send shares even higher in December 2024.

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 unsteady 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 Herald Investment and Scandinavian Tobacco

The main advantage of trading using opposite Herald Investment and Scandinavian Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Herald Investment 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 Herald Investment Trust 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.