Correlation Between Neste Oil and Purmo Group

Can any of the company-specific risk be diversified away by investing in both Neste Oil and Purmo Group 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 Purmo Group 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 Purmo Group Oyj, you can compare the effects of market volatilities on Neste Oil and Purmo Group 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 Purmo Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Neste Oil and Purmo Group.

Diversification Opportunities for Neste Oil and Purmo Group

-0.6

Correlation Coefficient

Neste Oil  Purmo Group

Excellent diversification

The 3 months correlation between Neste and Purmo is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Neste Oil Oyj and Purmo Group Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Purmo Group 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 Purmo Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Purmo Group Oyj has no effect on the direction of Neste Oil i.e., Neste Oil and Purmo Group go up and down completely randomly.

Pair Corralation between Neste Oil and Purmo Group

Assuming the 90 days trading horizon Neste Oil Oyj is expected to under-perform the Purmo Group. In addition to that, Neste Oil is 4.7 times more volatile than Purmo Group Oyj. It trades about -0.07 of its total potential returns per unit of risk. Purmo Group Oyj is currently generating about 0.06 per unit of volatility. If you would invest  1,106  in Purmo Group Oyj on September 12, 2024 and sell it today you would earn a total of  19.00  from holding Purmo Group Oyj or generate 1.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Neste Oil Oyj  vs.  Purmo Group 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 latest weak performance, the Stock's technical indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Purmo Group Oyj

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Purmo Group Oyj are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical indicators, Purmo Group is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Neste Oil and Purmo Group

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

The idea behind Neste Oil Oyj and Purmo Group 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.