Correlation Between Reka Industrial and Sotkamo Silver

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

By analyzing existing cross correlation between Reka Industrial Oyj and Sotkamo Silver AB, you can compare the effects of market volatilities on Reka Industrial and Sotkamo Silver 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 Reka Industrial with a short position of Sotkamo Silver. Check out your portfolio center. Please also check ongoing floating volatility patterns of Reka Industrial and Sotkamo Silver.

Diversification Opportunities for Reka Industrial and Sotkamo Silver

0.25

Correlation Coefficient

Reka Industrial  Sotkamo Silver

Modest diversification

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

Pair Corralation between Reka Industrial and Sotkamo Silver

Assuming the 90 days trading horizon Reka Industrial is expected to generate 3.02 times less return on investment than Sotkamo Silver. But when comparing it to its historical volatility, Reka Industrial Oyj is 1.23 times less risky than Sotkamo Silver. It trades about 0.04 of its potential returns per unit of risk. Sotkamo Silver AB is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  8.90  in Sotkamo Silver AB on October 5, 2024 and sell it today you would earn a total of  0.49  from holding Sotkamo Silver AB or generate 5.51% return on investment over 90 days.

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

Reka Industrial Oyj  vs.  Sotkamo Silver AB

Reka Industrial Oyj

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Reka Industrial Oyj has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Sotkamo Silver AB

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sotkamo Silver AB are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent technical indicators, Sotkamo Silver may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Reka Industrial and Sotkamo Silver

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

The idea behind Reka Industrial Oyj and Sotkamo Silver AB 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.