Correlation Between KONE Oyj and Wartsila Oyj

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

Diversification Opportunities for KONE Oyj and Wartsila Oyj

0.73

Correlation Coefficient

KONE Oyj  Wartsila Oyj

Poor diversification

The 3 months correlation between KONE and Wartsila is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding KONE Oyj and Wartsila Oyj Abp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wartsila Oyj Abp 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 Wartsila Oyj. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wartsila Oyj Abp has no effect on the direction of KONE Oyj i.e., KONE Oyj and Wartsila Oyj go up and down completely randomly.

Pair Corralation between KONE Oyj and Wartsila Oyj

Assuming the 90 days trading horizon KONE Oyj is expected to generate 0.55 times more return on investment than Wartsila Oyj. However, KONE Oyj is 1.81 times less risky than Wartsila Oyj. It trades about 0.03 of its potential returns per unit of risk. Wartsila Oyj Abp is currently generating about -0.03 per unit of risk. If you would invest  4,760  in KONE Oyj on September 3, 2024 and sell it today you would earn a total of  146.00  from holding KONE Oyj or generate 3.07% return on investment over 90 days.

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

KONE Oyj  vs.  Wartsila Oyj Abp

KONE Oyj

Risk-Adjusted Performance

0 of 100

Very Weak

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

Wartsila Oyj Abp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wartsila Oyj Abp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's technical indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with KONE Oyj and Wartsila Oyj

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

The idea behind KONE Oyj and Wartsila Oyj Abp 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.