Correlation Between Outokumpu Oyj and UPM Kymmene
Can any of the company-specific risk be diversified away by investing in both Outokumpu Oyj and UPM Kymmene 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 Outokumpu Oyj and UPM Kymmene into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Outokumpu Oyj and UPM Kymmene Oyj, you can compare the effects of market volatilities on Outokumpu Oyj and UPM Kymmene 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 Outokumpu Oyj with a short position of UPM Kymmene. Check out your portfolio center. Please also check ongoing floating volatility patterns of Outokumpu Oyj and UPM Kymmene.
Diversification Opportunities for Outokumpu Oyj and UPM Kymmene
0.45 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Outokumpu and UPM is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Outokumpu Oyj and UPM Kymmene Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UPM Kymmene Oyj and Outokumpu Oyj 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 Outokumpu Oyj are associated (or correlated) with UPM Kymmene. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UPM Kymmene Oyj has no effect on the direction of Outokumpu Oyj i.e., Outokumpu Oyj and UPM Kymmene go up and down completely randomly.
Pair Corralation between Outokumpu Oyj and UPM Kymmene
Assuming the 90 days trading horizon Outokumpu Oyj is expected to under-perform the UPM Kymmene. In addition to that, Outokumpu Oyj is 1.09 times more volatile than UPM Kymmene Oyj. It trades about -0.05 of its total potential returns per unit of risk. UPM Kymmene Oyj is currently generating about 0.01 per unit of volatility. If you would invest 2,602 in UPM Kymmene Oyj on August 28, 2024 and sell it today you would lose (12.00) from holding UPM Kymmene Oyj or give up 0.46% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Outokumpu Oyj vs. UPM Kymmene Oyj
Performance |
| Timeline |
| Outokumpu Oyj |
| UPM Kymmene Oyj |
Outokumpu Oyj and UPM Kymmene Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Outokumpu Oyj and UPM Kymmene
The main advantage of trading using opposite Outokumpu Oyj and UPM Kymmene positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Outokumpu Oyj position performs unexpectedly, UPM Kymmene 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 UPM Kymmene will offset losses from the drop in UPM Kymmene's long position.The idea behind Outokumpu Oyj and UPM Kymmene Oyj 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.Check out your portfolio center.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.
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