Correlation Between Valmet Oyj and Wartsila Oyj

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

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

Diversification Opportunities for Valmet Oyj and Wartsila Oyj

0.75

Correlation Coefficient

Valmet Oyj  Wartsila Oyj

Poor diversification

The 3 months correlation between Valmet and Wartsila is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Valmet 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 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 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 Valmet Oyj i.e., Valmet Oyj and Wartsila Oyj go up and down completely randomly.

Pair Corralation between Valmet Oyj and Wartsila Oyj

Assuming the 90 days trading horizon Valmet Oyj is expected to generate 0.79 times more return on investment than Wartsila Oyj. However, Valmet Oyj is 1.27 times less risky than Wartsila Oyj. It trades about 0.22 of its potential returns per unit of risk. Wartsila Oyj Abp is currently generating about 0.06 per unit of risk. If you would invest  2,239  in Valmet Oyj on December 1, 2024 and sell it today you would earn a total of  461.00  from holding Valmet Oyj or generate 20.59% return on investment over 90 days.

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

Valmet Oyj  vs.  Wartsila Oyj Abp

Valmet Oyj

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Valmet Oyj are ranked lower than 17 (%) 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.

Wartsila Oyj Abp

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Wartsila Oyj Abp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent technical indicators, Wartsila Oyj may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Valmet Oyj and Wartsila Oyj

The main advantage of trading using opposite Valmet Oyj and Wartsila Oyj positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Valmet Oyj 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 Valmet 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.

Check out your portfolio center.

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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.