Correlation Between Holmen AB and UPM Kymmene

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

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

Diversification Opportunities for Holmen AB and UPM Kymmene

0.95

Correlation Coefficient

Holmen AB  UPM Kymmene

Almost no diversification

The 3 months correlation between Holmen and UPM is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Holmen AB 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 Holmen AB 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 Holmen AB 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 Holmen AB i.e., Holmen AB and UPM Kymmene go up and down completely randomly.

Pair Corralation between Holmen AB and UPM Kymmene

Assuming the 90 days trading horizon Holmen AB is expected to generate 0.85 times more return on investment than UPM Kymmene. However, Holmen AB is 1.18 times less risky than UPM Kymmene. It trades about -0.05 of its potential returns per unit of risk. UPM Kymmene Oyj is currently generating about -0.12 per unit of risk. If you would invest  3,798  in Holmen AB on September 19, 2024 and sell it today you would lose (172.00) from holding Holmen AB or give up 4.53% of portfolio value over 90 days.

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

Holmen AB  vs.  UPM Kymmene Oyj

Holmen AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Holmen AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Holmen AB is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

UPM Kymmene Oyj

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days UPM Kymmene Oyj has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Holmen AB and UPM Kymmene

The main advantage of trading using opposite Holmen AB and UPM Kymmene positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Holmen AB 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 Holmen AB 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .