Correlation Between Fortum Oyj and UPM Kymmene

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

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

Diversification Opportunities for Fortum Oyj and UPM Kymmene

0.86

Correlation Coefficient

Fortum Oyj  UPM Kymmene

Very poor diversification

The 3 months correlation between Fortum and UPM is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Fortum Oyj and UPM Kymmene Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UPM Kymmene Oyj and Fortum 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 Fortum Oyj are associated (or correlated) with UPM Kymmene. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UPM Kymmene Oyj has no effect on the direction of Fortum Oyj i.e., Fortum Oyj and UPM Kymmene go up and down completely randomly.

Pair Corralation between Fortum Oyj and UPM Kymmene

Assuming the 90 days trading horizon Fortum Oyj is expected to generate 1.62 times more return on investment than UPM Kymmene. However, Fortum Oyj is 1.62 times more volatile than UPM Kymmene Oyj. It trades about 0.25 of its potential returns per unit of risk. UPM Kymmene Oyj is currently generating about 0.29 per unit of risk. If you would invest  1,191  in Fortum Oyj on February 4, 2024 and sell it today you would earn a total of  105.00  from holding Fortum Oyj or generate 8.82% return on investment over 90 days.

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

Fortum Oyj  vs.  UPM Kymmene Oyj

Fortum Oyj

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fortum Oyj are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Fortum Oyj may actually be approaching a critical reversion point that can send shares even higher in June 2024.

UPM Kymmene Oyj

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in UPM Kymmene Oyj are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent primary indicators, UPM Kymmene exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fortum Oyj and UPM Kymmene

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

The idea behind Fortum Oyj and UPM Kymmene 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.