Correlation Between Mercer International and UPM Kymmene

Can any of the company-specific risk be diversified away by investing in both Mercer International and UPM Kymmene 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 Mercer International and UPM Kymmene into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Mercer International and UPM Kymmene Oyj, you can compare the effects of market volatilities on Mercer International and UPM Kymmene 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 Mercer International with a short position of UPM Kymmene. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mercer International and UPM Kymmene.

Diversification Opportunities for Mercer International and UPM Kymmene

0.45

Correlation Coefficient

Mercer International  UPM Kymmene

Very weak diversification

The 3 months correlation between Mercer and UPM is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Mercer International and UPM Kymmene Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UPM Kymmene Oyj and Mercer International 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 Mercer International are associated (or correlated) with UPM Kymmene. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UPM Kymmene Oyj has no effect on the direction of Mercer International i.e., Mercer International and UPM Kymmene go up and down completely randomly.

Pair Corralation between Mercer International and UPM Kymmene

Given the investment horizon of 90 days Mercer International is expected to generate 1.49 times more return on investment than UPM Kymmene. However, Mercer International is 1.49 times more volatile than UPM Kymmene Oyj. It trades about 0.11 of its potential returns per unit of risk. UPM Kymmene Oyj is currently generating about 0.1 per unit of risk. If you would invest  645.00  in Mercer International on September 14, 2024 and sell it today you would earn a total of  29.00  from holding Mercer International or generate 4.5% return on investment over 90 days.

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

Mercer International  vs.  UPM Kymmene Oyj

Mercer International

Risk-Adjusted Performance

4 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Mercer International are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Mercer International may actually be approaching a critical reversion point that can send shares even higher in January 2025.

UPM Kymmene Oyj

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days UPM Kymmene Oyj has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's primary indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Mercer International and UPM Kymmene

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

The idea behind Mercer International and UPM Kymmene 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.

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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.