Correlation Between UPM Kymmene and Outokumpu Oyj

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

Diversification Opportunities for UPM Kymmene and Outokumpu Oyj

0.36

Correlation Coefficient

UPM Kymmene  Outokumpu Oyj

Weak diversification

The 3 months correlation between UPM and Outokumpu is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding UPM Kymmene Oyj and Outokumpu Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Outokumpu 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 Outokumpu Oyj. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Outokumpu Oyj has no effect on the direction of UPM Kymmene i.e., UPM Kymmene and Outokumpu Oyj go up and down completely randomly.

Pair Corralation between UPM Kymmene and Outokumpu Oyj

Assuming the 90 days trading horizon UPM Kymmene Oyj is expected to under-perform the Outokumpu Oyj. But the stock apears to be less risky and, when comparing its historical volatility, UPM Kymmene Oyj is 1.33 times less risky than Outokumpu Oyj. The stock trades about -0.01 of its potential returns per unit of risk. The Outokumpu Oyj is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  291.00  in Outokumpu Oyj on December 30, 2024 and sell it today you would earn a total of  67.00  from holding Outokumpu Oyj or generate 23.02% 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.  Outokumpu 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.

Outokumpu Oyj

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Outokumpu Oyj are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak technical indicators, Outokumpu Oyj demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with UPM Kymmene and Outokumpu Oyj

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

The idea behind UPM Kymmene Oyj and Outokumpu 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.