Correlation Between Neste Oyj and Cosan SA

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

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

Diversification Opportunities for Neste Oyj and Cosan SA

0.39

Correlation Coefficient

Neste Oyj  Cosan SA

Weak diversification

The 3 months correlation between Neste and Cosan is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Neste Oyj and Cosan SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cosan SA ADR and Neste 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 Neste Oyj are associated (or correlated) with Cosan SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cosan SA ADR has no effect on the direction of Neste Oyj i.e., Neste Oyj and Cosan SA go up and down completely randomly.

Pair Corralation between Neste Oyj and Cosan SA

Assuming the 90 days horizon Neste Oyj is expected to under-perform the Cosan SA. In addition to that, Neste Oyj is 1.35 times more volatile than Cosan SA ADR. It trades about -0.03 of its total potential returns per unit of risk. Cosan SA ADR is currently generating about 0.02 per unit of volatility. If you would invest  537.00  in Cosan SA ADR on December 28, 2024 and sell it today you would earn a total of  1.00  from holding Cosan SA ADR or generate 0.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	93.44%
Values	Daily Returns

Neste Oyj  vs.  Cosan SA ADR

Neste Oyj

Risk-Adjusted Performance

Very Weak

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

Cosan SA ADR

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cosan SA ADR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Cosan SA is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Neste Oyj and Cosan SA

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

The idea behind Neste Oyj and Cosan SA ADR 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.