Correlation Between UPM Kymmene and Metsa Board

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

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

Diversification Opportunities for UPM Kymmene and Metsa Board

0.95

Correlation Coefficient

UPM Kymmene  Metsa Board

Almost no diversification

The 3 months correlation between UPM and Metsa is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding UPM Kymmene Oyj and Metsa Board Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metsa Board Oyj and UPM Kymmene 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 UPM Kymmene Oyj are associated (or correlated) with Metsa Board. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metsa Board Oyj has no effect on the direction of UPM Kymmene i.e., UPM Kymmene and Metsa Board go up and down completely randomly.

Pair Corralation between UPM Kymmene and Metsa Board

Assuming the 90 days trading horizon UPM Kymmene Oyj is expected to generate 0.7 times more return on investment than Metsa Board. However, UPM Kymmene Oyj is 1.42 times less risky than Metsa Board. It trades about -0.14 of its potential returns per unit of risk. Metsa Board Oyj is currently generating about -0.16 per unit of risk. If you would invest  3,289  in UPM Kymmene Oyj on September 3, 2024 and sell it today you would lose (799.00) from holding UPM Kymmene Oyj or give up 24.29% of portfolio value over 90 days.

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

UPM Kymmene Oyj  vs.  Metsa Board Oyj

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 inconsistent performance in the last few months, the Stock's primary indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Metsa Board Oyj

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Metsa Board Oyj has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with UPM Kymmene and Metsa Board

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

The idea behind UPM Kymmene Oyj and Metsa Board 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.