Correlation Between UPM Kymmene and Mercer International

Can any of the company-specific risk be diversified away by investing in both UPM Kymmene and Mercer International 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 Mercer International 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 Mercer International, you can compare the effects of market volatilities on UPM Kymmene and Mercer International 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 Mercer International. Check out your portfolio center. Please also check ongoing floating volatility patterns of UPM Kymmene and Mercer International.

Diversification Opportunities for UPM Kymmene and Mercer International

0.49

Correlation Coefficient

UPM Kymmene  Mercer International

Very weak diversification

The 3 months correlation between UPM and Mercer is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding UPM Kymmene Oyj and Mercer International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercer International 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 Mercer International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mercer International has no effect on the direction of UPM Kymmene i.e., UPM Kymmene and Mercer International go up and down completely randomly.

Pair Corralation between UPM Kymmene and Mercer International

Assuming the 90 days horizon UPM Kymmene Oyj is expected to under-perform the Mercer International. But the pink sheet apears to be less risky and, when comparing its historical volatility, UPM Kymmene Oyj is 1.6 times less risky than Mercer International. The pink sheet trades about -0.09 of its potential returns per unit of risk. The Mercer International is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  634.00  in Mercer International on September 12, 2024 and sell it today you would earn a total of  40.00  from holding Mercer International or generate 6.31% return on investment over 90 days.

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

UPM Kymmene Oyj  vs.  Mercer International

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 weak 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.

Mercer International

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Mercer International are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Mercer International may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with UPM Kymmene and Mercer International

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

The idea behind UPM Kymmene Oyj and Mercer International 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.