Correlation Between UPM Kymmene and Neste Oil

Can any of the company-specific risk be diversified away by investing in both UPM Kymmene and Neste Oil 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 Neste Oil 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 Neste Oil Oyj, you can compare the effects of market volatilities on UPM Kymmene and Neste Oil 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 Neste Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of UPM Kymmene and Neste Oil.

Diversification Opportunities for UPM Kymmene and Neste Oil

-0.28

Correlation Coefficient

UPM Kymmene  Neste Oil

Very good diversification

The 3 months correlation between UPM and Neste is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding UPM Kymmene Oyj and Neste Oil Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Neste Oil 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 Neste Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Neste Oil Oyj has no effect on the direction of UPM Kymmene i.e., UPM Kymmene and Neste Oil go up and down completely randomly.

Pair Corralation between UPM Kymmene and Neste Oil

Assuming the 90 days trading horizon UPM Kymmene Oyj is expected to generate 0.54 times more return on investment than Neste Oil. However, UPM Kymmene Oyj is 1.85 times less risky than Neste Oil. It trades about -0.01 of its potential returns per unit of risk. Neste Oil Oyj is currently generating about -0.16 per unit of risk. If you would invest  2,579  in UPM Kymmene Oyj on December 29, 2024 and sell it today you would lose (54.00) from holding UPM Kymmene Oyj or give up 2.09% of portfolio value over 90 days.

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

UPM Kymmene Oyj  vs.  Neste Oil Oyj

UPM Kymmene Oyj

Risk-Adjusted Performance

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 rather sound primary indicators, UPM Kymmene is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Neste Oil Oyj

Risk-Adjusted Performance

Very Weak

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

Pair Trading with UPM Kymmene and Neste Oil

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

The idea behind UPM Kymmene Oyj and Neste Oil 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.