Correlation Between UPM Kymmene and Nokia Oyj

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

Diversification Opportunities for UPM Kymmene and Nokia Oyj

0.3

Correlation Coefficient

UPM Kymmene  Nokia Oyj

Weak diversification

The 3 months correlation between UPM and Nokia is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding UPM Kymmene Oyj and Nokia Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nokia 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 Nokia Oyj. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nokia Oyj has no effect on the direction of UPM Kymmene i.e., UPM Kymmene and Nokia Oyj go up and down completely randomly.

Pair Corralation between UPM Kymmene and Nokia Oyj

Assuming the 90 days trading horizon UPM Kymmene Oyj is expected to under-perform the Nokia Oyj. But the stock apears to be less risky and, when comparing its historical volatility, UPM Kymmene Oyj is 1.18 times less risky than Nokia Oyj. The stock trades about -0.01 of its potential returns per unit of risk. The Nokia Oyj is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  425.00  in Nokia Oyj on December 29, 2024 and sell it today you would earn a total of  63.00  from holding Nokia Oyj or generate 14.82% return on investment over 90 days.

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

UPM Kymmene Oyj  vs.  Nokia 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.

Nokia Oyj

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nokia Oyj are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak technical indicators, Nokia Oyj demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with UPM Kymmene and Nokia Oyj

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

The idea behind UPM Kymmene Oyj and Nokia 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.