Correlation Between Sotkamo Silver and Reka Industrial

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

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

Diversification Opportunities for Sotkamo Silver and Reka Industrial

0.03

Correlation Coefficient

Sotkamo Silver  Reka Industrial

Significant diversification

The 3 months correlation between Sotkamo and Reka is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Sotkamo Silver AB and Reka Industrial Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reka Industrial Oyj and Sotkamo Silver 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 Sotkamo Silver AB are associated (or correlated) with Reka Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reka Industrial Oyj has no effect on the direction of Sotkamo Silver i.e., Sotkamo Silver and Reka Industrial go up and down completely randomly.

Pair Corralation between Sotkamo Silver and Reka Industrial

Assuming the 90 days trading horizon Sotkamo Silver AB is expected to generate 1.95 times more return on investment than Reka Industrial. However, Sotkamo Silver is 1.95 times more volatile than Reka Industrial Oyj. It trades about 0.08 of its potential returns per unit of risk. Reka Industrial Oyj is currently generating about 0.01 per unit of risk. If you would invest  7.60  in Sotkamo Silver AB on September 3, 2024 and sell it today you would earn a total of  1.37  from holding Sotkamo Silver AB or generate 18.03% return on investment over 90 days.

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

Sotkamo Silver AB  vs.  Reka Industrial Oyj

Sotkamo Silver AB

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sotkamo Silver AB are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent technical indicators, Sotkamo Silver demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Reka Industrial Oyj

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Reka Industrial Oyj has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Reka Industrial is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Sotkamo Silver and Reka Industrial

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

The idea behind Sotkamo Silver AB and Reka Industrial 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.