Correlation Between Scandinavian Tobacco and Tesco PLC

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

Diversification Opportunities for Scandinavian Tobacco and Tesco PLC

-0.39

Correlation Coefficient

Scandinavian Tobacco  Tesco PLC

Very good diversification

The 3 months correlation between Scandinavian and Tesco is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Scandinavian Tobacco Group and Tesco PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tesco PLC 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 Tesco PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tesco PLC has no effect on the direction of Scandinavian Tobacco i.e., Scandinavian Tobacco and Tesco PLC go up and down completely randomly.

Pair Corralation between Scandinavian Tobacco and Tesco PLC

Assuming the 90 days trading horizon Scandinavian Tobacco Group is expected to under-perform the Tesco PLC. But the stock apears to be less risky and, when comparing its historical volatility, Scandinavian Tobacco Group is 1.06 times less risky than Tesco PLC. The stock trades about -0.1 of its potential returns per unit of risk. The Tesco PLC is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  37,034  in Tesco PLC on April 6, 2025 and sell it today you would earn a total of  3,516  from holding Tesco PLC or generate 9.49% return on investment over 90 days.

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

Scandinavian Tobacco Group  vs.  Tesco PLC

Scandinavian Tobacco

Risk-Adjusted Performance

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 comparatively stable basic indicators, Scandinavian Tobacco is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Tesco PLC

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tesco PLC are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Tesco PLC unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Scandinavian Tobacco and Tesco PLC

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

The idea behind Scandinavian Tobacco Group and Tesco PLC 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.