Correlation Between Wartsila Oyj and Alandsbanken Abp

Can any of the company-specific risk be diversified away by investing in both Wartsila Oyj and Alandsbanken Abp 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 Wartsila Oyj and Alandsbanken Abp into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Wartsila Oyj and Alandsbanken Abp

0.36

Correlation Coefficient

Wartsila Oyj  Alandsbanken Abp

Weak diversification

The 3 months correlation between Wartsila and Alandsbanken is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Wartsila Oyj Abp and Alandsbanken Abp B in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alandsbanken Abp B and Wartsila 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 Wartsila Oyj Abp are associated (or correlated) with Alandsbanken Abp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alandsbanken Abp B has no effect on the direction of Wartsila Oyj i.e., Wartsila Oyj and Alandsbanken Abp go up and down completely randomly.

Pair Corralation between Wartsila Oyj and Alandsbanken Abp

Assuming the 90 days trading horizon Wartsila Oyj Abp is expected to generate 2.02 times more return on investment than Alandsbanken Abp. However, Wartsila Oyj is 2.02 times more volatile than Alandsbanken Abp B. It trades about 0.37 of its potential returns per unit of risk. Alandsbanken Abp B is currently generating about -0.09 per unit of risk. If you would invest  1,417  in Wartsila Oyj Abp on January 31, 2024 and sell it today you would earn a total of  310.00  from holding Wartsila Oyj Abp or generate 21.88% return on investment over 90 days.

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

Wartsila Oyj Abp  vs.  Alandsbanken Abp B

Wartsila Oyj Abp

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Wartsila Oyj Abp are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Wartsila Oyj demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Alandsbanken Abp B

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alandsbanken Abp B are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, Alandsbanken Abp may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Wartsila Oyj and Alandsbanken Abp

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

The idea behind Wartsila Oyj Abp and Alandsbanken Abp B 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.