Correlation Between Neste Oyj and Idemitsu Kosan

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

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

Diversification Opportunities for Neste Oyj and Idemitsu Kosan

-0.5

Correlation Coefficient

Neste Oyj  Idemitsu Kosan

Very good diversification

The 3 months correlation between Neste and Idemitsu is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Neste Oyj and Idemitsu Kosan CoLtd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Idemitsu Kosan CoLtd and Neste Oyj 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 Neste Oyj are associated (or correlated) with Idemitsu Kosan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Idemitsu Kosan CoLtd has no effect on the direction of Neste Oyj i.e., Neste Oyj and Idemitsu Kosan go up and down completely randomly.

Pair Corralation between Neste Oyj and Idemitsu Kosan

Assuming the 90 days horizon Neste Oyj is expected to under-perform the Idemitsu Kosan. In addition to that, Neste Oyj is 1.91 times more volatile than Idemitsu Kosan CoLtd. It trades about -0.14 of its total potential returns per unit of risk. Idemitsu Kosan CoLtd is currently generating about 0.11 per unit of volatility. If you would invest  616.00  in Idemitsu Kosan CoLtd on December 29, 2024 and sell it today you would earn a total of  69.00  from holding Idemitsu Kosan CoLtd or generate 11.2% return on investment over 90 days.

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

Neste Oyj  vs.  Idemitsu Kosan CoLtd

Neste Oyj

Risk-Adjusted Performance

Very Weak

Over the last 90 days Neste Oyj has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Idemitsu Kosan CoLtd

Risk-Adjusted Performance

OK

Over the last 90 days Idemitsu Kosan CoLtd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly weak basic indicators, Idemitsu Kosan may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Neste Oyj and Idemitsu Kosan

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

The idea behind Neste Oyj and Idemitsu Kosan CoLtd 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.