Correlation Between Sappi and UPM Kymmene

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

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

Diversification Opportunities for Sappi and UPM Kymmene

0.32

Correlation Coefficient

Sappi  UPM Kymmene

Weak diversification

The 3 months correlation between Sappi and UPM is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Sappi Ltd ADR and UPM Kymmene Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UPM Kymmene Oyj and Sappi 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 Sappi Ltd ADR are associated (or correlated) with UPM Kymmene. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UPM Kymmene Oyj has no effect on the direction of Sappi i.e., Sappi and UPM Kymmene go up and down completely randomly.

Pair Corralation between Sappi and UPM Kymmene

If you would invest  2,832  in UPM Kymmene Oyj on October 10, 2024 and sell it today you would earn a total of  10.00  from holding UPM Kymmene Oyj or generate 0.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	5.0%
Values	Daily Returns

Sappi Ltd ADR  vs.  UPM Kymmene Oyj

Sappi Ltd ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sappi Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward-looking indicators, Sappi is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

UPM Kymmene Oyj

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days UPM Kymmene Oyj has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Sappi and UPM Kymmene

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

The idea behind Sappi Ltd ADR and UPM Kymmene 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.

Check out your portfolio center.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.