Correlation Between Scandinavian Tobacco and CECO Environmental

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

Diversification Opportunities for Scandinavian Tobacco and CECO Environmental

-0.61

Correlation Coefficient

Scandinavian Tobacco  CECO Environmental

Excellent diversification

The 3 months correlation between Scandinavian and CECO is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Scandinavian Tobacco Group and CECO Environmental Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CECO Environmental Corp 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 CECO Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CECO Environmental Corp has no effect on the direction of Scandinavian Tobacco i.e., Scandinavian Tobacco and CECO Environmental go up and down completely randomly.

Pair Corralation between Scandinavian Tobacco and CECO Environmental

Assuming the 90 days horizon Scandinavian Tobacco Group is expected to under-perform the CECO Environmental. But the pink sheet apears to be less risky and, when comparing its historical volatility, Scandinavian Tobacco Group is 3.74 times less risky than CECO Environmental. The pink sheet trades about -0.08 of its potential returns per unit of risk. The CECO Environmental Corp is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,619  in CECO Environmental Corp on September 4, 2024 and sell it today you would earn a total of  584.00  from holding CECO Environmental Corp or generate 22.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Scandinavian Tobacco Group  vs.  CECO Environmental Corp

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 latest stock price disturbance, may contribute to short-term losses for the investors.

CECO Environmental Corp

Risk-Adjusted Performance

8 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CECO Environmental Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain fundamental indicators, CECO Environmental displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Scandinavian Tobacco and CECO Environmental

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

The idea behind Scandinavian Tobacco Group and CECO Environmental Corp 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.