Correlation Between UPM Kymmene and Wartsila Oyj

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

Diversification Opportunities for UPM Kymmene and Wartsila Oyj

0.31

Correlation Coefficient

UPM Kymmene  Wartsila Oyj

Weak diversification

The 3 months correlation between UPM and Wartsila is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding UPM Kymmene Oyj and Wartsila Oyj Abp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wartsila Oyj Abp 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 Wartsila Oyj. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wartsila Oyj Abp has no effect on the direction of UPM Kymmene i.e., UPM Kymmene and Wartsila Oyj go up and down completely randomly.

Pair Corralation between UPM Kymmene and Wartsila Oyj

Assuming the 90 days trading horizon UPM Kymmene Oyj is expected to under-perform the Wartsila Oyj. But the stock apears to be less risky and, when comparing its historical volatility, UPM Kymmene Oyj is 1.47 times less risky than Wartsila Oyj. The stock trades about -0.01 of its potential returns per unit of risk. The Wartsila Oyj Abp is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,689  in Wartsila Oyj Abp on December 30, 2024 and sell it today you would earn a total of  42.00  from holding Wartsila Oyj Abp or generate 2.49% 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.  Wartsila Oyj Abp

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.

Wartsila Oyj Abp

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Wartsila Oyj Abp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical indicators, Wartsila Oyj is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with UPM Kymmene and Wartsila Oyj

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

The idea behind UPM Kymmene Oyj and Wartsila Oyj Abp 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.