Correlation Between Scandinavian Tobacco and Westrock Coffee

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

Diversification Opportunities for Scandinavian Tobacco and Westrock Coffee

-0.5

Correlation Coefficient

Scandinavian Tobacco  Westrock Coffee

Very good diversification

The 3 months correlation between Scandinavian and Westrock is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Scandinavian Tobacco Group and Westrock Coffee in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westrock Coffee 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 Westrock Coffee. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westrock Coffee has no effect on the direction of Scandinavian Tobacco i.e., Scandinavian Tobacco and Westrock Coffee go up and down completely randomly.

Pair Corralation between Scandinavian Tobacco and Westrock Coffee

Assuming the 90 days horizon Scandinavian Tobacco Group is expected to generate 0.65 times more return on investment than Westrock Coffee. However, Scandinavian Tobacco Group is 1.54 times less risky than Westrock Coffee. It trades about 0.03 of its potential returns per unit of risk. Westrock Coffee is currently generating about -0.03 per unit of risk. If you would invest  608.00  in Scandinavian Tobacco Group on September 2, 2024 and sell it today you would earn a total of  108.00  from holding Scandinavian Tobacco Group or generate 17.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Scandinavian Tobacco Group  vs.  Westrock Coffee

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.

Westrock Coffee

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Westrock Coffee are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Westrock Coffee may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Scandinavian Tobacco and Westrock Coffee

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

The idea behind Scandinavian Tobacco Group and Westrock Coffee 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.