Correlation Between Svenska Cellulosa and Stora Enso

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

By analyzing existing cross correlation between Svenska Cellulosa Aktiebolaget and Stora Enso Oyj, you can compare the effects of market volatilities on Svenska Cellulosa and Stora Enso 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 Svenska Cellulosa with a short position of Stora Enso. Check out your portfolio center. Please also check ongoing floating volatility patterns of Svenska Cellulosa and Stora Enso.

Diversification Opportunities for Svenska Cellulosa and Stora Enso

0.86

Correlation Coefficient

Svenska Cellulosa  Stora Enso

Very poor diversification

The 3 months correlation between Svenska and Stora is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Svenska Cellulosa Aktiebolaget and Stora Enso Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stora Enso Oyj and Svenska Cellulosa 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 Svenska Cellulosa Aktiebolaget are associated (or correlated) with Stora Enso. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stora Enso Oyj has no effect on the direction of Svenska Cellulosa i.e., Svenska Cellulosa and Stora Enso go up and down completely randomly.

Pair Corralation between Svenska Cellulosa and Stora Enso

Assuming the 90 days trading horizon Svenska Cellulosa is expected to generate 2.38 times less return on investment than Stora Enso. But when comparing it to its historical volatility, Svenska Cellulosa Aktiebolaget is 1.67 times less risky than Stora Enso. It trades about 0.07 of its potential returns per unit of risk. Stora Enso Oyj is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  10,590  in Stora Enso Oyj on November 29, 2024 and sell it today you would earn a total of  1,200  from holding Stora Enso Oyj or generate 11.33% return on investment over 90 days.

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

Svenska Cellulosa Aktiebolaget  vs.  Stora Enso Oyj

Svenska Cellulosa

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Svenska Cellulosa Aktiebolaget are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Svenska Cellulosa is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Stora Enso Oyj

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Stora Enso Oyj are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Stora Enso unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Svenska Cellulosa and Stora Enso

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

The idea behind Svenska Cellulosa Aktiebolaget and Stora Enso Oyj 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.