Correlation Between Ultrapar Participacoes and Neste Oyj

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

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

Diversification Opportunities for Ultrapar Participacoes and Neste Oyj

0.84

Correlation Coefficient

Ultrapar Participacoes  Neste Oyj

Very poor diversification

The 3 months correlation between Ultrapar and Neste is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Ultrapar Participacoes SA and Neste Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Neste Oyj and Ultrapar Participacoes 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 Ultrapar Participacoes SA are associated (or correlated) with Neste Oyj. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Neste Oyj has no effect on the direction of Ultrapar Participacoes i.e., Ultrapar Participacoes and Neste Oyj go up and down completely randomly.

Pair Corralation between Ultrapar Participacoes and Neste Oyj

Considering the 90-day investment horizon Ultrapar Participacoes SA is expected to under-perform the Neste Oyj. But the stock apears to be less risky and, when comparing its historical volatility, Ultrapar Participacoes SA is 1.41 times less risky than Neste Oyj. The stock trades about -0.18 of its potential returns per unit of risk. The Neste Oyj is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  1,885  in Neste Oyj on October 12, 2024 and sell it today you would lose (505.00) from holding Neste Oyj or give up 26.79% of portfolio value over 90 days.

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

Ultrapar Participacoes SA  vs.  Neste Oyj

Ultrapar Participacoes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ultrapar Participacoes SA has generated negative risk-adjusted returns adding no value to investors with long positions. Even with uncertain performance in the last few months, the Stock's technical and fundamental indicators remain relatively invariable which may send shares a bit higher in February 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Neste Oyj

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Ultrapar Participacoes and Neste Oyj

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

The idea behind Ultrapar Participacoes SA and Neste 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.