Correlation Between Metsa Board and Telia Company

Can any of the company-specific risk be diversified away by investing in both Metsa Board and Telia Company 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 Metsa Board and Telia Company into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Metsa Board Oyj and Telia Company AB, you can compare the effects of market volatilities on Metsa Board and Telia Company 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 Metsa Board with a short position of Telia Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of Metsa Board and Telia Company.

Diversification Opportunities for Metsa Board and Telia Company

-0.33

Correlation Coefficient

Metsa Board  Telia Company

Very good diversification

The 3 months correlation between Metsa and Telia is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Metsa Board Oyj and Telia Company AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telia Company and Metsa Board 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 Metsa Board Oyj are associated (or correlated) with Telia Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telia Company has no effect on the direction of Metsa Board i.e., Metsa Board and Telia Company go up and down completely randomly.

Pair Corralation between Metsa Board and Telia Company

Assuming the 90 days trading horizon Metsa Board Oyj is expected to under-perform the Telia Company. But the stock apears to be less risky and, when comparing its historical volatility, Metsa Board Oyj is 1.5 times less risky than Telia Company. The stock trades about -0.01 of its potential returns per unit of risk. The Telia Company AB is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  277.00  in Telia Company AB on November 29, 2024 and sell it today you would earn a total of  35.00  from holding Telia Company AB or generate 12.64% return on investment over 90 days.

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

Metsa Board Oyj  vs.  Telia Company AB

Metsa Board Oyj

Risk-Adjusted Performance

Very Weak

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

Telia Company

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Telia Company AB are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Telia Company sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Metsa Board and Telia Company

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

The idea behind Metsa Board Oyj and Telia Company AB 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.