Correlation Between Neoen SA and Fortum Oyj

Can any of the company-specific risk be diversified away by investing in both Neoen SA and Fortum Oyj 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 Neoen SA and Fortum Oyj into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Neoen SA and Fortum Oyj

-0.33

Correlation Coefficient

Neoen SA  Fortum Oyj

Very good diversification

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

Pair Corralation between Neoen SA and Fortum Oyj

Assuming the 90 days horizon Neoen SA is expected to under-perform the Fortum Oyj. But the stock apears to be less risky and, when comparing its historical volatility, Neoen SA is 2.21 times less risky than Fortum Oyj. The stock trades about -0.06 of its potential returns per unit of risk. The Fortum Oyj is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,363  in Fortum Oyj on December 29, 2024 and sell it today you would earn a total of  182.00  from holding Fortum Oyj or generate 13.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Neoen SA  vs.  Fortum Oyj

Neoen SA

Risk-Adjusted Performance

Very Weak

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

Fortum Oyj

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fortum Oyj are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Fortum Oyj reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Neoen SA and Fortum Oyj

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

The idea behind Neoen SA and Fortum 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.