Correlation Between Neste Oil and UPM Kymmene

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

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

Diversification Opportunities for Neste Oil and UPM Kymmene

0.85

Correlation Coefficient

Neste Oil  UPM Kymmene

Very poor diversification

The 3 months correlation between Neste and UPM is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Neste Oil Oyj 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 Neste Oil 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 Neste Oil Oyj 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 Neste Oil i.e., Neste Oil and UPM Kymmene go up and down completely randomly.

Pair Corralation between Neste Oil and UPM Kymmene

Assuming the 90 days trading horizon Neste Oil Oyj is expected to under-perform the UPM Kymmene. In addition to that, Neste Oil is 1.48 times more volatile than UPM Kymmene Oyj. It trades about -0.14 of its total potential returns per unit of risk. UPM Kymmene Oyj is currently generating about -0.08 per unit of volatility. If you would invest  2,834  in UPM Kymmene Oyj on September 15, 2024 and sell it today you would lose (235.00) from holding UPM Kymmene Oyj or give up 8.29% of portfolio value over 90 days.

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

Neste Oil Oyj  vs.  UPM Kymmene Oyj

Neste Oil Oyj

Risk-Adjusted Performance

0 of 100

Very Weak

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 indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

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. In spite of latest inconsistent performance, the Stock's primary indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Neste Oil and UPM Kymmene

The main advantage of trading using opposite Neste Oil and UPM Kymmene positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Neste Oil 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 Neste Oil Oyj 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.

Check out your portfolio center.

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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.