Correlation Between Fortum Oyj and Raute Oyj

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

Diversification Opportunities for Fortum Oyj and Raute Oyj

-0.46

Correlation Coefficient

Fortum Oyj  Raute Oyj

Very good diversification

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

Pair Corralation between Fortum Oyj and Raute Oyj

Assuming the 90 days trading horizon Fortum Oyj is expected to generate 6.88 times less return on investment than Raute Oyj. But when comparing it to its historical volatility, Fortum Oyj is 1.23 times less risky than Raute Oyj. It trades about 0.01 of its potential returns per unit of risk. Raute Oyj is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,200  in Raute Oyj on October 9, 2024 and sell it today you would earn a total of  110.00  from holding Raute Oyj or generate 9.17% return on investment over 90 days.

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

Fortum Oyj  vs.  Raute Oyj

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 newest stock price disturbance, may contribute to short-term losses for the investors.

Raute Oyj

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Raute Oyj are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent technical indicators, Raute Oyj may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Fortum Oyj and Raute Oyj

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

The idea behind Fortum Oyj and Raute 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.