Correlation Between Nokia Oyj and MT 1997

Can any of the company-specific risk be diversified away by investing in both Nokia Oyj and MT 1997 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 Oyj and MT 1997 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Nokia Oyj and MT 1997 AS, you can compare the effects of market volatilities on Nokia Oyj and MT 1997 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 Oyj with a short position of MT 1997. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nokia Oyj and MT 1997.

Diversification Opportunities for Nokia Oyj and MT 1997

0.79

Correlation Coefficient

Nokia Oyj  MT 1997

Poor diversification

The 3 months correlation between Nokia and KLIKY is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Nokia Oyj and MT 1997 AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MT 1997 AS and Nokia 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 Nokia Oyj are associated (or correlated) with MT 1997. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MT 1997 AS has no effect on the direction of Nokia Oyj i.e., Nokia Oyj and MT 1997 go up and down completely randomly.

Pair Corralation between Nokia Oyj and MT 1997

Assuming the 90 days trading horizon Nokia Oyj is expected to generate 1.45 times more return on investment than MT 1997. However, Nokia Oyj is 1.45 times more volatile than MT 1997 AS. It trades about 0.17 of its potential returns per unit of risk. MT 1997 AS is currently generating about 0.08 per unit of risk. If you would invest  9,958  in Nokia Oyj on November 28, 2024 and sell it today you would earn a total of  1,644  from holding Nokia Oyj or generate 16.51% return on investment over 90 days.

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

Nokia Oyj  vs.  MT 1997 AS

Nokia Oyj

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nokia Oyj are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Nokia Oyj reported solid returns over the last few months and may actually be approaching a breakup point.

MT 1997 AS

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in MT 1997 AS are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, MT 1997 is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Nokia Oyj and MT 1997

The main advantage of trading using opposite Nokia Oyj and MT 1997 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nokia Oyj position performs unexpectedly, MT 1997 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 MT 1997 will offset losses from the drop in MT 1997's long position.

The idea behind Nokia Oyj and MT 1997 AS 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.