Correlation Between Kesko Oyj and Kempower Oyj

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

By analyzing existing cross correlation between Kesko Oyj and Kempower Oyj, you can compare the effects of market volatilities on Kesko Oyj and Kempower 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 Kesko Oyj with a short position of Kempower Oyj. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kesko Oyj and Kempower Oyj.

Diversification Opportunities for Kesko Oyj and Kempower Oyj

0.09

Correlation Coefficient

Kesko Oyj  Kempower Oyj

Significant diversification

The 3 months correlation between Kesko and Kempower is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Kesko Oyj and Kempower Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kempower Oyj and Kesko 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 Kesko Oyj are associated (or correlated) with Kempower Oyj. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kempower Oyj has no effect on the direction of Kesko Oyj i.e., Kesko Oyj and Kempower Oyj go up and down completely randomly.

Pair Corralation between Kesko Oyj and Kempower Oyj

Assuming the 90 days trading horizon Kesko Oyj is expected to generate 14.03 times less return on investment than Kempower Oyj. But when comparing it to its historical volatility, Kesko Oyj is 3.45 times less risky than Kempower Oyj. It trades about 0.05 of its potential returns per unit of risk. Kempower Oyj is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  1,028  in Kempower Oyj on December 3, 2024 and sell it today you would earn a total of  342.00  from holding Kempower Oyj or generate 33.27% return on investment over 90 days.

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

Kesko Oyj  vs.  Kempower Oyj

Kesko Oyj

Risk-Adjusted Performance

Very Weak

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

Kempower Oyj

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kempower Oyj are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Kempower Oyj reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kesko Oyj and Kempower Oyj

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

The idea behind Kesko Oyj and Kempower 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 Transaction History module to view history of all your transactions and understand their impact on performance.