Correlation Between OMX Helsinki and Kesko Oyj

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

By analyzing existing cross correlation between OMX Helsinki 25 and Kesko Oyj, you can compare the effects of market volatilities on OMX Helsinki and Kesko 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 OMX Helsinki with a short position of Kesko Oyj. Check out your portfolio center. Please also check ongoing floating volatility patterns of OMX Helsinki and Kesko Oyj.

Diversification Opportunities for OMX Helsinki and Kesko Oyj

0.38

Correlation Coefficient

OMX Helsinki  Kesko Oyj

Weak diversification

The 3 months correlation between OMX and Kesko is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding OMX Helsinki 25 and Kesko Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kesko Oyj and OMX Helsinki 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 OMX Helsinki 25 are associated (or correlated) with Kesko Oyj. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kesko Oyj has no effect on the direction of OMX Helsinki i.e., OMX Helsinki and Kesko Oyj go up and down completely randomly.

Pair Corralation between OMX Helsinki and Kesko Oyj

Assuming the 90 days trading horizon OMX Helsinki 25 is expected to generate 0.51 times more return on investment than Kesko Oyj. However, OMX Helsinki 25 is 1.98 times less risky than Kesko Oyj. It trades about 0.11 of its potential returns per unit of risk. Kesko Oyj is currently generating about -0.13 per unit of risk. If you would invest  437,675  in OMX Helsinki 25 on January 30, 2024 and sell it today you would earn a total of  6,847  from holding OMX Helsinki 25 or generate 1.56% return on investment over 90 days.

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

OMX Helsinki 25  vs.  Kesko Oyj

Pair Trading with OMX Helsinki and Kesko Oyj

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

The idea behind OMX Helsinki 25 and Kesko 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.