Correlation between Sector Indices of OMX Stockholm Exchange Market

Abstract: In this paper we aim to investigate volatility and correlation of sector indexes of Nordic Market. More precisely we work with OMX Stockholm Exchange Indexes, considering the Paper, the Energy and the Bank sectors. We use daily returns over the period from 5 January 2001 to 13 April 2007 and compute and forecast return volatility using the GARCH(1; 1) model. We also calculate the correlation matrix of the indexes. The GARCH(1; 1) model ¯t the empirical data well for all three sectors and can therefore be used for volatility forecasts. Here, we have pre- dicted the one-day-ahead forecasts and based on these data calculated the correlation matrix. The results from these calculations show that all three sectors are highly correlated. We obtained however the small- est correlation between Paper and Energy which was surprising as the Paper industry is very energy consuming. This result indicates other relations between Paper and Energy.