Correlation Between Fortum Oyj and Fodelia

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

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

Diversification Opportunities for Fortum Oyj and Fodelia

-0.34

Correlation Coefficient

Fortum Oyj  Fodelia

Very good diversification

The 3 months correlation between Fortum and Fodelia is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Fortum Oyj and Fodelia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fodelia 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 Fodelia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fodelia has no effect on the direction of Fortum Oyj i.e., Fortum Oyj and Fodelia go up and down completely randomly.

Pair Corralation between Fortum Oyj and Fodelia

Assuming the 90 days trading horizon Fortum Oyj is expected to generate 0.92 times more return on investment than Fodelia. However, Fortum Oyj is 1.09 times less risky than Fodelia. It trades about -0.01 of its potential returns per unit of risk. Fodelia is currently generating about -0.13 per unit of risk. If you would invest  1,418  in Fortum Oyj on October 8, 2024 and sell it today you would lose (6.00) from holding Fortum Oyj or give up 0.42% 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.  Fodelia

Fortum Oyj

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fortum Oyj are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Fortum Oyj is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Fodelia

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fodelia are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Fodelia may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Fortum Oyj and Fodelia

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

The idea behind Fortum Oyj and Fodelia 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.