Correlation Between Nokian Renkaat and Essentra Plc

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Can any of the company-specific risk be diversified away by investing in both Nokian Renkaat and Essentra Plc 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 Nokian Renkaat and Essentra Plc into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nokian Renkaat Oyj and Essentra plc, you can compare the effects of market volatilities on Nokian Renkaat and Essentra Plc 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 Nokian Renkaat with a short position of Essentra Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nokian Renkaat and Essentra Plc.

Diversification Opportunities for Nokian Renkaat and Essentra Plc

0.25
  Correlation Coefficient

Modest diversification

The 3 months correlation between Nokian and Essentra is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Nokian Renkaat Oyj and Essentra plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essentra plc and Nokian Renkaat 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 Nokian Renkaat Oyj are associated (or correlated) with Essentra Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essentra plc has no effect on the direction of Nokian Renkaat i.e., Nokian Renkaat and Essentra Plc go up and down completely randomly.

Pair Corralation between Nokian Renkaat and Essentra Plc

Assuming the 90 days horizon Nokian Renkaat Oyj is expected to under-perform the Essentra Plc. But the stock apears to be less risky and, when comparing its historical volatility, Nokian Renkaat Oyj is 1.08 times less risky than Essentra Plc. The stock trades about -0.13 of its potential returns per unit of risk. The Essentra plc is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  171.00  in Essentra plc on September 23, 2024 and sell it today you would lose (18.00) from holding Essentra plc or give up 10.53% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Nokian Renkaat Oyj  vs.  Essentra plc

 Performance 
       Timeline  
Nokian Renkaat Oyj 

Risk-Adjusted Performance

0 of 100

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

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Essentra plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Nokian Renkaat and Essentra Plc Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Nokian Renkaat and Essentra Plc

The main advantage of trading using opposite Nokian Renkaat and Essentra Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nokian Renkaat position performs unexpectedly, Essentra Plc 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 Essentra Plc will offset losses from the drop in Essentra Plc's long position.
The idea behind Nokian Renkaat Oyj and Essentra plc 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.

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