Correlation Between KONE Oyj and Valmet Oyj

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

Diversification Opportunities for KONE Oyj and Valmet Oyj

0.85

Correlation Coefficient

KONE Oyj  Valmet Oyj

Very poor diversification

The 3 months correlation between KONE and Valmet is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding KONE Oyj and Valmet Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valmet 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 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 KONE Oyj i.e., KONE Oyj and Valmet Oyj go up and down completely randomly.

Pair Corralation between KONE Oyj and Valmet Oyj

Assuming the 90 days trading horizon KONE Oyj is expected to generate 1.11 times less return on investment than Valmet Oyj. But when comparing it to its historical volatility, KONE Oyj is 1.45 times less risky than Valmet Oyj. It trades about 0.18 of its potential returns per unit of risk. Valmet Oyj is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2,275  in Valmet Oyj on December 28, 2024 and sell it today you would earn a total of  350.00  from holding Valmet Oyj or generate 15.38% return on investment over 90 days.

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

KONE Oyj  vs.  Valmet 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 14 (%) 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.

Valmet Oyj

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Valmet Oyj are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady technical indicators, Valmet Oyj demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KONE Oyj and Valmet Oyj

The main advantage of trading using opposite KONE Oyj and Valmet Oyj positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KONE 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 KONE 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.

Check out your portfolio center.

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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..