Correlation Between Fortum Oyj and Encavis AG

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

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

Diversification Opportunities for Fortum Oyj and Encavis AG

0.87

Correlation Coefficient

Fortum Oyj  Encavis AG

Very poor diversification

The 3 months correlation between Fortum and Encavis is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Fortum Oyj and Encavis AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Encavis AG 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 Encavis AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Encavis AG has no effect on the direction of Fortum Oyj i.e., Fortum Oyj and Encavis AG go up and down completely randomly.

Pair Corralation between Fortum Oyj and Encavis AG

Assuming the 90 days horizon Fortum Oyj is expected to generate 10.09 times more return on investment than Encavis AG. However, Fortum Oyj is 10.09 times more volatile than Encavis AG. It trades about 0.11 of its potential returns per unit of risk. Encavis AG is currently generating about 0.2 per unit of risk. If you would invest  1,363  in Fortum Oyj on December 29, 2024 and sell it today you would earn a total of  156.00  from holding Fortum Oyj or generate 11.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Fortum Oyj  vs.  Encavis AG

Fortum Oyj

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fortum Oyj are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Fortum Oyj may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Encavis AG

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Encavis AG are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Encavis AG is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Fortum Oyj and Encavis AG

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

The idea behind Fortum Oyj and Encavis AG 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.