Correlation Between Finnair Oyj and Outokumpu Oyj

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

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

Diversification Opportunities for Finnair Oyj and Outokumpu Oyj

0.64

Correlation Coefficient

Finnair Oyj  Outokumpu Oyj

Poor diversification

The 3 months correlation between Finnair and Outokumpu is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Finnair Oyj and Outokumpu Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Outokumpu Oyj and Finnair 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 Finnair Oyj are associated (or correlated) with Outokumpu Oyj. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Outokumpu Oyj has no effect on the direction of Finnair Oyj i.e., Finnair Oyj and Outokumpu Oyj go up and down completely randomly.

Pair Corralation between Finnair Oyj and Outokumpu Oyj

Assuming the 90 days trading horizon Finnair Oyj is expected to generate 1.15 times less return on investment than Outokumpu Oyj. In addition to that, Finnair Oyj is 1.49 times more volatile than Outokumpu Oyj. It trades about 0.03 of its total potential returns per unit of risk. Outokumpu Oyj is currently generating about 0.05 per unit of volatility. If you would invest  322.00  in Outokumpu Oyj on September 14, 2024 and sell it today you would earn a total of  13.00  from holding Outokumpu Oyj or generate 4.04% return on investment over 90 days.

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

Finnair Oyj  vs.  Outokumpu Oyj

Finnair Oyj

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Finnair Oyj are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical indicators, Finnair Oyj is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Outokumpu Oyj

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Outokumpu Oyj are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical indicators, Outokumpu Oyj is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Finnair Oyj and Outokumpu Oyj

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

The idea behind Finnair Oyj and Outokumpu 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.