Correlation Between Valmet Oyj and Metsa Board

Can any of the company-specific risk be diversified away by investing in both Valmet Oyj and Metsa Board 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 Valmet Oyj and Metsa Board into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Valmet Oyj and Metsa Board Oyj, you can compare the effects of market volatilities on Valmet Oyj and Metsa Board 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 Valmet Oyj with a short position of Metsa Board. Check out your portfolio center. Please also check ongoing floating volatility patterns of Valmet Oyj and Metsa Board.

Diversification Opportunities for Valmet Oyj and Metsa Board

-0.43

Correlation Coefficient

Valmet Oyj  Metsa Board

Very good diversification

The 3 months correlation between Valmet and Metsa is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Valmet Oyj and Metsa Board Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metsa Board Oyj and Valmet Oyj 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 Valmet Oyj are associated (or correlated) with Metsa Board. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metsa Board Oyj has no effect on the direction of Valmet Oyj i.e., Valmet Oyj and Metsa Board go up and down completely randomly.

Pair Corralation between Valmet Oyj and Metsa Board

Assuming the 90 days trading horizon Valmet Oyj is expected to generate 0.57 times more return on investment than Metsa Board. However, Valmet Oyj is 1.74 times less risky than Metsa Board. It trades about 0.14 of its potential returns per unit of risk. Metsa Board Oyj is currently generating about 0.0 per unit of risk. If you would invest  2,275  in Valmet Oyj on December 28, 2024 and sell it today you would earn a total of  350.00  from holding Valmet Oyj or generate 15.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Valmet Oyj  vs.  Metsa Board Oyj

Valmet Oyj

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Valmet Oyj are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady technical indicators, Valmet Oyj demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Metsa Board Oyj

Risk-Adjusted Performance

Very Weak

Over the last 90 days Metsa Board Oyj has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical indicators, Metsa Board is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Valmet Oyj and Metsa Board

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

The idea behind Valmet Oyj and Metsa Board 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.