Correlation Between KONE Oyj and Neste Oil

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

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

Diversification Opportunities for KONE Oyj and Neste Oil

-0.69

Correlation Coefficient

KONE Oyj  Neste Oil

Excellent diversification

The 3 months correlation between KONE and Neste is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding KONE Oyj and Neste Oil Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Neste Oil Oyj and KONE 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 KONE Oyj are associated (or correlated) with Neste Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Neste Oil Oyj has no effect on the direction of KONE Oyj i.e., KONE Oyj and Neste Oil go up and down completely randomly.

Pair Corralation between KONE Oyj and Neste Oil

Assuming the 90 days trading horizon KONE Oyj is expected to generate 0.4 times more return on investment than Neste Oil. However, KONE Oyj is 2.47 times less risky than Neste Oil. It trades about 0.19 of its potential returns per unit of risk. Neste Oil Oyj is currently generating about -0.26 per unit of risk. If you would invest  4,906  in KONE Oyj on November 29, 2024 and sell it today you would earn a total of  620.00  from holding KONE Oyj or generate 12.64% return on investment over 90 days.

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

KONE Oyj  vs.  Neste Oil Oyj

KONE Oyj

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in KONE Oyj are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent technical indicators, KONE Oyj demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Neste Oil Oyj

Risk-Adjusted Performance

Very Weak

Over the last 90 days Neste Oil Oyj has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in March 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with KONE Oyj and Neste Oil

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

The idea behind KONE Oyj and Neste Oil 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.