Correlation Between UPM Kymmene and Nokian Renkaat

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

Diversification Opportunities for UPM Kymmene and Nokian Renkaat

0.88

Correlation Coefficient

UPM Kymmene  Nokian Renkaat

Very poor diversification

The 3 months correlation between UPM and Nokian is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding UPM Kymmene Oyj and Nokian Renkaat Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nokian Renkaat 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 Nokian Renkaat. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nokian Renkaat Oyj has no effect on the direction of UPM Kymmene i.e., UPM Kymmene and Nokian Renkaat go up and down completely randomly.

Pair Corralation between UPM Kymmene and Nokian Renkaat

Assuming the 90 days trading horizon UPM Kymmene Oyj is expected to generate 1.0 times more return on investment than Nokian Renkaat. However, UPM Kymmene Oyj is 1.0 times less risky than Nokian Renkaat. It trades about 0.1 of its potential returns per unit of risk. Nokian Renkaat Oyj is currently generating about 0.05 per unit of risk. If you would invest  2,680  in UPM Kymmene Oyj on October 10, 2024 and sell it today you would earn a total of  56.00  from holding UPM Kymmene Oyj or generate 2.09% return on investment over 90 days.

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

UPM Kymmene Oyj  vs.  Nokian Renkaat 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 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.

Nokian Renkaat Oyj

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nokian Renkaat Oyj has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with UPM Kymmene and Nokian Renkaat

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

The idea behind UPM Kymmene Oyj and Nokian Renkaat 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.