Can any of the company-specific risk be diversified away by investing in both Nokia Oyj and Neste Oil 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 Nokia Oyj and Neste Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nokia Oyj and Neste Oil Oyj, you can compare the effects of market volatilities on Nokia Oyj and Neste Oil 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 Nokia Oyj with a short position of Neste Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nokia Oyj and Neste Oil.
Diversification Opportunities for Nokia Oyj and Neste Oil
The 3 months correlation between Nokia and Neste is -0.88. Overlapping area represents the amount of risk that can be diversified away by holding Nokia Oyj and Neste Oil Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Neste Oil Oyj and Nokia 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 Nokia Oyj are associated (or correlated) with Neste Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Neste Oil Oyj has no effect on the direction of Nokia Oyj i.e., Nokia Oyj and Neste Oil go up and down completely randomly.
Assuming the 90 days trading horizon Nokia Oyj is expected to generate 0.46 times more return on investment than Neste Oil. However, Nokia Oyj is 2.17 times less risky than Neste Oil. It trades about 0.13 of its potential returns per unit of risk. Neste Oil Oyj is currently generating about -0.21 per unit of risk. If you would invest 346.00 in Nokia Oyj on March 6, 2024 and sell it today you would earn a total of 15.00 from holding Nokia Oyj or generate 4.34% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Nokia Oyj are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Nokia Oyj may actually be approaching a critical reversion point that can send shares even higher in July 2024.
Over the last 90 days Neste Oil Oyj has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in July 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.