Correlation Between Neste Oil and KONE Oyj

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

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

Diversification Opportunities for Neste Oil and KONE Oyj

0.24

Correlation Coefficient

Neste Oil  KONE Oyj

Modest diversification

The 3 months correlation between Neste and KONE is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Neste Oil Oyj and KONE Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KONE Oyj and Neste Oil 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 Oil Oyj are associated (or correlated) with KONE Oyj. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KONE Oyj has no effect on the direction of Neste Oil i.e., Neste Oil and KONE Oyj go up and down completely randomly.

Pair Corralation between Neste Oil and KONE Oyj

Assuming the 90 days trading horizon Neste Oil Oyj is expected to generate 1.97 times more return on investment than KONE Oyj. However, Neste Oil is 1.97 times more volatile than KONE Oyj. It trades about 0.0 of its potential returns per unit of risk. KONE Oyj is currently generating about -0.01 per unit of risk. If you would invest  1,409  in Neste Oil Oyj on September 4, 2024 and sell it today you would lose (10.00) from holding Neste Oil Oyj or give up 0.71% of portfolio value over 90 days.

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

Neste Oil Oyj  vs.  KONE Oyj

Neste Oil Oyj

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Neste Oil Oyj has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

KONE Oyj

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in KONE Oyj are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical indicators, KONE Oyj is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Neste Oil and KONE Oyj

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

The idea behind Neste Oil Oyj and KONE 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.