Correlation Between UPM Kymmene and Clearwater Paper

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

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

Diversification Opportunities for UPM Kymmene and Clearwater Paper

0.54

Correlation Coefficient

UPM Kymmene  Clearwater Paper

Very weak diversification

The 3 months correlation between UPM and Clearwater is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding UPM Kymmene Oyj and Clearwater Paper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clearwater Paper and UPM Kymmene 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 UPM Kymmene Oyj are associated (or correlated) with Clearwater Paper. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clearwater Paper has no effect on the direction of UPM Kymmene i.e., UPM Kymmene and Clearwater Paper go up and down completely randomly.

Pair Corralation between UPM Kymmene and Clearwater Paper

Assuming the 90 days horizon UPM Kymmene Oyj is expected to under-perform the Clearwater Paper. But the pink sheet apears to be less risky and, when comparing its historical volatility, UPM Kymmene Oyj is 1.56 times less risky than Clearwater Paper. The pink sheet trades about -0.09 of its potential returns per unit of risk. The Clearwater Paper is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  2,881  in Clearwater Paper on September 12, 2024 and sell it today you would lose (291.00) from holding Clearwater Paper or give up 10.1% of portfolio value over 90 days.

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

UPM Kymmene Oyj  vs.  Clearwater Paper

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 unsteady performance, the Stock's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Clearwater Paper

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Clearwater Paper has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's essential indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with UPM Kymmene and Clearwater Paper

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

The idea behind UPM Kymmene Oyj and Clearwater Paper 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.