Correlation Between Joint Stock and OMX Helsinki

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

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

Diversification Opportunities for Joint Stock and OMX Helsinki

0.38

Correlation Coefficient

Joint Stock  OMX Helsinki

Weak diversification

The 3 months correlation between Joint and OMX is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Joint Stock and OMX Helsinki BenchmarkGI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OMX Helsinki BenchmarkGI and Joint Stock 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 Joint Stock are associated (or correlated) with OMX Helsinki. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OMX Helsinki BenchmarkGI has no effect on the direction of Joint Stock i.e., Joint Stock and OMX Helsinki go up and down completely randomly.

Pair Corralation between Joint Stock and OMX Helsinki

Given the investment horizon of 90 days Joint Stock is expected to under-perform the OMX Helsinki. In addition to that, Joint Stock is 2.94 times more volatile than OMX Helsinki BenchmarkGI. It trades about -0.06 of its total potential returns per unit of risk. OMX Helsinki BenchmarkGI is currently generating about 0.43 per unit of volatility. If you would invest  13,792  in OMX Helsinki BenchmarkGI on October 26, 2024 and sell it today you would earn a total of  754.00  from holding OMX Helsinki BenchmarkGI or generate 5.47% return on investment over 90 days.

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

Joint Stock  vs.  OMX Helsinki BenchmarkGI

Pair Trading with Joint Stock and OMX Helsinki

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

The idea behind Joint Stock and OMX Helsinki BenchmarkGI 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.