Correlation Between Finnair Oyj and EasyJet PLC

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

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

Diversification Opportunities for Finnair Oyj and EasyJet PLC

-0.32

Correlation Coefficient

Finnair Oyj  EasyJet PLC

Very good diversification

The 3 months correlation between Finnair and EasyJet is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Finnair Oyj and EasyJet PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EasyJet PLC ADR and Finnair 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 Finnair Oyj are associated (or correlated) with EasyJet PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EasyJet PLC ADR has no effect on the direction of Finnair Oyj i.e., Finnair Oyj and EasyJet PLC go up and down completely randomly.

Pair Corralation between Finnair Oyj and EasyJet PLC

Assuming the 90 days horizon Finnair Oyj is expected to generate 1.63 times more return on investment than EasyJet PLC. However, Finnair Oyj is 1.63 times more volatile than EasyJet PLC ADR. It trades about 0.2 of its potential returns per unit of risk. EasyJet PLC ADR is currently generating about -0.04 per unit of risk. If you would invest  233.00  in Finnair Oyj on December 2, 2024 and sell it today you would earn a total of  118.00  from holding Finnair Oyj or generate 50.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	93.85%
Values	Daily Returns

Finnair Oyj  vs.  EasyJet PLC ADR

Finnair Oyj

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Finnair Oyj are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Finnair Oyj reported solid returns over the last few months and may actually be approaching a breakup point.

EasyJet PLC ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days EasyJet PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward-looking indicators, EasyJet PLC is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Finnair Oyj and EasyJet PLC

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

The idea behind Finnair Oyj and EasyJet PLC ADR 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.