Correlation Between BillerudKorsnas and Stora Enso

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

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

Diversification Opportunities for BillerudKorsnas and Stora Enso

0.87

Correlation Coefficient

BillerudKorsnas  Stora Enso

Very poor diversification

The 3 months correlation between BillerudKorsnas and Stora is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding BillerudKorsnas AB and Stora Enso Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stora Enso Oyj and BillerudKorsnas 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 BillerudKorsnas AB are associated (or correlated) with Stora Enso. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stora Enso Oyj has no effect on the direction of BillerudKorsnas i.e., BillerudKorsnas and Stora Enso go up and down completely randomly.

Pair Corralation between BillerudKorsnas and Stora Enso

Assuming the 90 days trading horizon BillerudKorsnas AB is expected to generate 0.5 times more return on investment than Stora Enso. However, BillerudKorsnas AB is 2.01 times less risky than Stora Enso. It trades about 0.32 of its potential returns per unit of risk. Stora Enso Oyj is currently generating about 0.12 per unit of risk. If you would invest  9,560  in BillerudKorsnas AB on November 29, 2024 and sell it today you would earn a total of  2,400  from holding BillerudKorsnas AB or generate 25.1% return on investment over 90 days.

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

BillerudKorsnas AB  vs.  Stora Enso Oyj

BillerudKorsnas AB

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BillerudKorsnas AB are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, BillerudKorsnas unveiled solid returns over the last few months and may actually be approaching a breakup point.

Stora Enso Oyj

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Stora Enso Oyj are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Stora Enso unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BillerudKorsnas and Stora Enso

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

The idea behind BillerudKorsnas AB and Stora Enso 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.

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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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.