Correlation Between Kesko Oyj and Valmet Oyj

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

Diversification Opportunities for Kesko Oyj and Valmet Oyj

-0.19

Correlation Coefficient

Kesko Oyj  Valmet Oyj

Good diversification

The 3 months correlation between Kesko and Valmet is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Kesko Oyj and Valmet Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valmet 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 Valmet Oyj. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valmet Oyj has no effect on the direction of Kesko Oyj i.e., Kesko Oyj and Valmet Oyj go up and down completely randomly.

Pair Corralation between Kesko Oyj and Valmet Oyj

Assuming the 90 days trading horizon Kesko Oyj is expected to generate 0.65 times more return on investment than Valmet Oyj. However, Kesko Oyj is 1.54 times less risky than Valmet Oyj. It trades about 0.05 of its potential returns per unit of risk. Valmet Oyj is currently generating about -0.04 per unit of risk. If you would invest  1,810  in Kesko Oyj on September 4, 2024 and sell it today you would earn a total of  70.00  from holding Kesko Oyj or generate 3.87% return on investment over 90 days.

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

Kesko Oyj  vs.  Valmet Oyj

Kesko Oyj

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Kesko Oyj are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

Valmet Oyj

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Valmet Oyj has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical indicators, Valmet Oyj is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Kesko Oyj and Valmet Oyj

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

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