Correlation Between Nordea Bank and UPM Kymmene

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

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

Diversification Opportunities for Nordea Bank and UPM Kymmene

0.85

Correlation Coefficient

Nordea Bank  UPM Kymmene

Very poor diversification

The 3 months correlation between Nordea and UPM is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Nordea Bank Abp 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 Nordea Bank 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 Nordea Bank Abp 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 Nordea Bank i.e., Nordea Bank and UPM Kymmene go up and down completely randomly.

Pair Corralation between Nordea Bank and UPM Kymmene

Assuming the 90 days trading horizon Nordea Bank is expected to generate 1.23 times less return on investment than UPM Kymmene. But when comparing it to its historical volatility, Nordea Bank Abp is 1.43 times less risky than UPM Kymmene. It trades about 0.21 of its potential returns per unit of risk. UPM Kymmene Oyj is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  2,536  in UPM Kymmene Oyj on November 20, 2024 and sell it today you would earn a total of  438.00  from holding UPM Kymmene Oyj or generate 17.27% return on investment over 90 days.

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

Nordea Bank Abp  vs.  UPM Kymmene Oyj

Nordea Bank Abp

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nordea Bank Abp are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent basic indicators, Nordea Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

UPM Kymmene Oyj

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in UPM Kymmene Oyj are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent primary indicators, UPM Kymmene exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nordea Bank and UPM Kymmene

The main advantage of trading using opposite Nordea Bank and UPM Kymmene positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nordea Bank 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 Nordea Bank Abp 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.

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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.