Correlation Between Metso Outotec and INTERSHOP Communications

Can any of the company-specific risk be diversified away by investing in both Metso Outotec and INTERSHOP Communications 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 Metso Outotec and INTERSHOP Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Metso Outotec and INTERSHOP Communications

-0.7

Correlation Coefficient

Metso Outotec  INTERSHOP Communications

Excellent diversification

The 3 months correlation between Metso and INTERSHOP is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Metso Outotec Oyj and INTERSHOP Communications Aktie in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INTERSHOP Communications and Metso Outotec 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 Metso Outotec Oyj are associated (or correlated) with INTERSHOP Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INTERSHOP Communications has no effect on the direction of Metso Outotec i.e., Metso Outotec and INTERSHOP Communications go up and down completely randomly.

Pair Corralation between Metso Outotec and INTERSHOP Communications

Assuming the 90 days horizon Metso Outotec is expected to generate 4.17 times less return on investment than INTERSHOP Communications. But when comparing it to its historical volatility, Metso Outotec Oyj is 1.41 times less risky than INTERSHOP Communications. It trades about 0.01 of its potential returns per unit of risk. INTERSHOP Communications Aktiengesellschaft is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  148.00  in INTERSHOP Communications Aktiengesellschaft on October 11, 2024 and sell it today you would earn a total of  32.00  from holding INTERSHOP Communications Aktiengesellschaft or generate 21.62% return on investment over 90 days.

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

Metso Outotec Oyj  vs.  INTERSHOP Communications Aktie

Metso Outotec Oyj

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Metso Outotec Oyj has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Metso Outotec is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

INTERSHOP Communications

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in INTERSHOP Communications Aktiengesellschaft are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, INTERSHOP Communications may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Metso Outotec and INTERSHOP Communications

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

The idea behind Metso Outotec Oyj and INTERSHOP Communications Aktiengesellschaft 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.