Correlation Between Scandinavian Tobacco and Algonquin Power

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

Diversification Opportunities for Scandinavian Tobacco and Algonquin Power

-0.1

Correlation Coefficient

Scandinavian Tobacco  Algonquin Power

Good diversification

The 3 months correlation between Scandinavian and Algonquin is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Scandinavian Tobacco Group and Algonquin Power Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Algonquin Power Utilities 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 Algonquin Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Algonquin Power Utilities has no effect on the direction of Scandinavian Tobacco i.e., Scandinavian Tobacco and Algonquin Power go up and down completely randomly.

Pair Corralation between Scandinavian Tobacco and Algonquin Power

Assuming the 90 days horizon Scandinavian Tobacco Group is expected to generate 0.88 times more return on investment than Algonquin Power. However, Scandinavian Tobacco Group is 1.14 times less risky than Algonquin Power. It trades about 0.0 of its potential returns per unit of risk. Algonquin Power Utilities is currently generating about -0.02 per unit of risk. If you would invest  1,299  in Scandinavian Tobacco Group on March 28, 2025 and sell it today you would lose (155.00) from holding Scandinavian Tobacco Group or give up 11.93% of portfolio value over 90 days.

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

Scandinavian Tobacco Group  vs.  Algonquin Power Utilities

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. Despite nearly stable basic indicators, Scandinavian Tobacco is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Algonquin Power Utilities

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Algonquin Power Utilities are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Algonquin Power is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Scandinavian Tobacco and Algonquin Power

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

The idea behind Scandinavian Tobacco Group and Algonquin Power Utilities 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.