Correlation Between Fortum Oyj and Cargotec Oyj

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

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

Diversification Opportunities for Fortum Oyj and Cargotec Oyj

-0.37

Correlation Coefficient

Fortum Oyj  Cargotec Oyj

Very good diversification

The 3 months correlation between Fortum and Cargotec is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Fortum Oyj and Cargotec Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cargotec Oyj and Fortum 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 Fortum Oyj are associated (or correlated) with Cargotec Oyj. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cargotec Oyj has no effect on the direction of Fortum Oyj i.e., Fortum Oyj and Cargotec Oyj go up and down completely randomly.

Pair Corralation between Fortum Oyj and Cargotec Oyj

Assuming the 90 days trading horizon Fortum Oyj is expected to under-perform the Cargotec Oyj. But the stock apears to be less risky and, when comparing its historical volatility, Fortum Oyj is 1.48 times less risky than Cargotec Oyj. The stock trades about -0.24 of its potential returns per unit of risk. The Cargotec Oyj is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  5,284  in Cargotec Oyj on September 29, 2024 and sell it today you would lose (104.00) from holding Cargotec Oyj or give up 1.97% of portfolio value over 90 days.

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

Fortum Oyj  vs.  Cargotec Oyj

Fortum Oyj

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fortum Oyj has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Fortum Oyj is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Cargotec Oyj

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cargotec Oyj has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical indicators, Cargotec Oyj is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Fortum Oyj and Cargotec Oyj

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

The idea behind Fortum Oyj and Cargotec 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.