Correlation Between KONE Oyj and Finnair Oyj

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Can any of the company-specific risk be diversified away by investing in both KONE Oyj and Finnair 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 KONE Oyj and Finnair Oyj into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between KONE Oyj and Finnair Oyj, you can compare the effects of market volatilities on KONE Oyj and Finnair 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 KONE Oyj with a short position of Finnair Oyj. Check out your portfolio center. Please also check ongoing floating volatility patterns of KONE Oyj and Finnair Oyj.

Diversification Opportunities for KONE Oyj and Finnair Oyj

0.7
  Correlation Coefficient

Poor diversification

The 3 months correlation between KONE and Finnair is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding KONE Oyj and Finnair Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Finnair Oyj and KONE 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 KONE Oyj are associated (or correlated) with Finnair Oyj. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Finnair Oyj has no effect on the direction of KONE Oyj i.e., KONE Oyj and Finnair Oyj go up and down completely randomly.

Pair Corralation between KONE Oyj and Finnair Oyj

Assuming the 90 days trading horizon KONE Oyj is expected to under-perform the Finnair Oyj. But the stock apears to be less risky and, when comparing its historical volatility, KONE Oyj is 1.69 times less risky than Finnair Oyj. The stock trades about -0.04 of its potential returns per unit of risk. The Finnair Oyj is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  237.00  in Finnair Oyj on September 17, 2024 and sell it today you would lose (6.00) from holding Finnair Oyj or give up 2.53% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

KONE Oyj  vs.  Finnair Oyj

 Performance 
       Timeline  
KONE Oyj 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days KONE Oyj has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical indicators, KONE Oyj is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.
Finnair Oyj 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Finnair Oyj has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical indicators, Finnair Oyj is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

KONE Oyj and Finnair Oyj Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with KONE Oyj and Finnair Oyj

The main advantage of trading using opposite KONE Oyj and Finnair Oyj positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KONE Oyj position performs unexpectedly, Finnair 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 Finnair Oyj will offset losses from the drop in Finnair Oyj's long position.
The idea behind KONE Oyj and Finnair 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.

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