Correlation Between Metso Outotec and VOLVO B

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

Diversification Opportunities for Metso Outotec and VOLVO B

0.34

Correlation Coefficient

Metso Outotec  VOLVO B

Weak diversification

The 3 months correlation between Metso and VOLVO is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Metso Outotec Oyj and VOLVO B UNSPADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VOLVO B UNSPADR 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 VOLVO B. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VOLVO B UNSPADR has no effect on the direction of Metso Outotec i.e., Metso Outotec and VOLVO B go up and down completely randomly.

Pair Corralation between Metso Outotec and VOLVO B

Assuming the 90 days horizon Metso Outotec Oyj is expected to generate 1.2 times more return on investment than VOLVO B. However, Metso Outotec is 1.2 times more volatile than VOLVO B UNSPADR. It trades about 0.27 of its potential returns per unit of risk. VOLVO B UNSPADR is currently generating about -0.02 per unit of risk. If you would invest  803.00  in Metso Outotec Oyj on September 23, 2024 and sell it today you would earn a total of  83.00  from holding Metso Outotec Oyj or generate 10.34% return on investment over 90 days.

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

Metso Outotec Oyj  vs.  VOLVO B UNSPADR

Metso Outotec Oyj

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Metso Outotec Oyj are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Metso Outotec is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

VOLVO B UNSPADR

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Metso Outotec and VOLVO B

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

The idea behind Metso Outotec Oyj and VOLVO B UNSPADR 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.