Correlation Between Traton SE and Metso Outotec

Can any of the company-specific risk be diversified away by investing in both Traton SE and Metso Outotec 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 Traton SE and Metso Outotec into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Traton SE and Metso Outotec Oyj, you can compare the effects of market volatilities on Traton SE and Metso Outotec 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 Traton SE with a short position of Metso Outotec. Check out your portfolio center. Please also check ongoing floating volatility patterns of Traton SE and Metso Outotec.

Diversification Opportunities for Traton SE and Metso Outotec

0.24

Correlation Coefficient

Traton SE  Metso Outotec

Modest diversification

The 3 months correlation between Traton and Metso is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Traton SE and Metso Outotec Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metso Outotec Oyj and Traton SE 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 Traton SE are associated (or correlated) with Metso Outotec. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metso Outotec Oyj has no effect on the direction of Traton SE i.e., Traton SE and Metso Outotec go up and down completely randomly.

Pair Corralation between Traton SE and Metso Outotec

Assuming the 90 days trading horizon Traton SE is expected to under-perform the Metso Outotec. In addition to that, Traton SE is 1.4 times more volatile than Metso Outotec Oyj. It trades about -0.11 of its total potential returns per unit of risk. Metso Outotec Oyj is currently generating about 0.27 per unit of volatility. If you would invest  803.00  in Metso Outotec Oyj on September 23, 2024 and sell it today you would earn a total of  83.00  from holding Metso Outotec Oyj or generate 10.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Traton SE  vs.  Metso Outotec Oyj

Traton SE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Traton SE has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Traton SE is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Metso Outotec Oyj

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Metso Outotec Oyj are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Metso Outotec is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Traton SE and Metso Outotec

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

The idea behind Traton SE and Metso Outotec 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.