Correlation Between Nokia and LEGAL GENERAL

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

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

Diversification Opportunities for Nokia and LEGAL GENERAL

-0.05

Correlation Coefficient

Nokia  LEGAL GENERAL

Good diversification

The 3 months correlation between Nokia and LEGAL is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Nokia and LEGAL GENERAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LEGAL GENERAL and Nokia 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 Nokia are associated (or correlated) with LEGAL GENERAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LEGAL GENERAL has no effect on the direction of Nokia i.e., Nokia and LEGAL GENERAL go up and down completely randomly.

Pair Corralation between Nokia and LEGAL GENERAL

Assuming the 90 days trading horizon Nokia is expected to generate 0.82 times more return on investment than LEGAL GENERAL. However, Nokia is 1.22 times less risky than LEGAL GENERAL. It trades about 0.24 of its potential returns per unit of risk. LEGAL GENERAL is currently generating about 0.04 per unit of risk. If you would invest  400.00  in Nokia on September 23, 2024 and sell it today you would earn a total of  26.00  from holding Nokia or generate 6.5% return on investment over 90 days.

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

Nokia  vs.  LEGAL GENERAL

Nokia

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nokia are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Nokia may actually be approaching a critical reversion point that can send shares even higher in January 2025.

LEGAL GENERAL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LEGAL GENERAL has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward indicators, LEGAL GENERAL is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Nokia and LEGAL GENERAL

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

The idea behind Nokia and LEGAL GENERAL 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.