Correlation Between Fortum Oyj and Telia Company

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

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

Diversification Opportunities for Fortum Oyj and Telia Company

0.04

Correlation Coefficient

Fortum Oyj  Telia Company

Significant diversification

The 3 months correlation between Fortum and Telia is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Fortum Oyj and Telia Company AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telia Company 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 Telia Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telia Company has no effect on the direction of Fortum Oyj i.e., Fortum Oyj and Telia Company go up and down completely randomly.

Pair Corralation between Fortum Oyj and Telia Company

Assuming the 90 days trading horizon Fortum Oyj is expected to generate 1.48 times more return on investment than Telia Company. However, Fortum Oyj is 1.48 times more volatile than Telia Company AB. It trades about 0.13 of its potential returns per unit of risk. Telia Company AB is currently generating about 0.13 per unit of risk. If you would invest  1,353  in Fortum Oyj on September 1, 2024 and sell it today you would earn a total of  74.00  from holding Fortum Oyj or generate 5.47% return on investment over 90 days.

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

Fortum Oyj  vs.  Telia Company AB

Fortum Oyj

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fortum Oyj are ranked lower than 2 (%) 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 latest stock price disturbance, may contribute to short-term losses for the investors.

Telia Company

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Fortum Oyj and Telia Company

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

The idea behind Fortum Oyj and Telia Company AB 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.