Correlation Between UPM Kymmene and Mercer International

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

Diversification Opportunities for UPM Kymmene and Mercer International

0.47

Correlation Coefficient

UPM Kymmene  Mercer International

Very weak diversification

The 3 months correlation between UPM and Mercer is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding UPM Kymmene Oyj and Mercer International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercer International 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 Mercer International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mercer International has no effect on the direction of UPM Kymmene i.e., UPM Kymmene and Mercer International go up and down completely randomly.

Pair Corralation between UPM Kymmene and Mercer International

Assuming the 90 days horizon UPM Kymmene is expected to generate 1.83 times less return on investment than Mercer International. But when comparing it to its historical volatility, UPM Kymmene Oyj is 2.24 times less risky than Mercer International. It trades about 0.16 of its potential returns per unit of risk. Mercer International is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  609.00  in Mercer International on October 20, 2024 and sell it today you would earn a total of  36.00  from holding Mercer International or generate 5.91% return on investment over 90 days.

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

UPM Kymmene Oyj  vs.  Mercer International

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 latest unsteady performance, the Stock's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Mercer International

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Mercer International are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Mercer International is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with UPM Kymmene and Mercer International

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

The idea behind UPM Kymmene Oyj and Mercer International 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .