Correlation Between Wartsila Oyj and Fortum Oyj

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

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

Diversification Opportunities for Wartsila Oyj and Fortum Oyj

0.24

Correlation Coefficient

Wartsila Oyj  Fortum Oyj

Modest diversification

The 3 months correlation between Wartsila and Fortum is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Wartsila Oyj Abp and Fortum Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortum Oyj and Wartsila 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 Wartsila Oyj Abp are associated (or correlated) with Fortum Oyj. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortum Oyj has no effect on the direction of Wartsila Oyj i.e., Wartsila Oyj and Fortum Oyj go up and down completely randomly.

Pair Corralation between Wartsila Oyj and Fortum Oyj

Assuming the 90 days trading horizon Wartsila Oyj Abp is expected to generate 1.23 times more return on investment than Fortum Oyj. However, Wartsila Oyj is 1.23 times more volatile than Fortum Oyj. It trades about 0.08 of its potential returns per unit of risk. Fortum Oyj is currently generating about 0.06 per unit of risk. If you would invest  1,107  in Wartsila Oyj Abp on November 20, 2024 and sell it today you would earn a total of  724.00  from holding Wartsila Oyj Abp or generate 65.4% return on investment over 90 days.

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

Wartsila Oyj Abp  vs.  Fortum Oyj

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 3 (%) 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.

Fortum Oyj

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fortum Oyj are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Fortum Oyj is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Wartsila Oyj and Fortum Oyj

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

The idea behind Wartsila Oyj Abp and Fortum 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.

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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.