Correlation Between Fortum Oyj and EQ Oyj

Can any of the company-specific risk be diversified away by investing in both Fortum Oyj and EQ 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 EQ 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 eQ Oyj, you can compare the effects of market volatilities on Fortum Oyj and EQ 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 EQ Oyj. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fortum Oyj and EQ Oyj.

Diversification Opportunities for Fortum Oyj and EQ Oyj

0.46

Correlation Coefficient

Fortum Oyj  EQ Oyj

Very weak diversification

The 3 months correlation between Fortum and EQV1V is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Fortum Oyj and eQ Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on eQ 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 EQ Oyj. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of eQ Oyj has no effect on the direction of Fortum Oyj i.e., Fortum Oyj and EQ Oyj go up and down completely randomly.

Pair Corralation between Fortum Oyj and EQ Oyj

Assuming the 90 days trading horizon Fortum Oyj is expected to generate 1.38 times more return on investment than EQ Oyj. However, Fortum Oyj is 1.38 times more volatile than eQ Oyj. It trades about -0.01 of its potential returns per unit of risk. eQ Oyj is currently generating about -0.17 per unit of risk. If you would invest  1,392  in Fortum Oyj on October 24, 2024 and sell it today you would lose (37.00) from holding Fortum Oyj or give up 2.66% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.75%
Values	Daily Returns

Fortum Oyj  vs.  eQ 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.

eQ Oyj

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days eQ Oyj has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in February 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Fortum Oyj and EQ Oyj

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

The idea behind Fortum Oyj and eQ 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.