Correlation Between Telefonaktiebolaget and Procter Gamble

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

By analyzing existing cross correlation between Telefonaktiebolaget LM Ericsson and The Procter Gamble, you can compare the effects of market volatilities on Telefonaktiebolaget and Procter Gamble 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 Telefonaktiebolaget with a short position of Procter Gamble. Check out your portfolio center. Please also check ongoing floating volatility patterns of Telefonaktiebolaget and Procter Gamble.

Diversification Opportunities for Telefonaktiebolaget and Procter Gamble

0.38

Correlation Coefficient

Telefonaktiebolaget  Procter Gamble

Weak diversification

The 3 months correlation between Telefonaktiebolaget and Procter is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Telefonaktiebolaget LM Ericsso and The Procter Gamble in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Procter Gamble and Telefonaktiebolaget 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 Telefonaktiebolaget LM Ericsson are associated (or correlated) with Procter Gamble. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Procter Gamble has no effect on the direction of Telefonaktiebolaget i.e., Telefonaktiebolaget and Procter Gamble go up and down completely randomly.

Pair Corralation between Telefonaktiebolaget and Procter Gamble

Assuming the 90 days trading horizon Telefonaktiebolaget LM Ericsson is expected to under-perform the Procter Gamble. In addition to that, Telefonaktiebolaget is 1.4 times more volatile than The Procter Gamble. It trades about -0.02 of its total potential returns per unit of risk. The Procter Gamble is currently generating about 0.41 per unit of volatility. If you would invest  6,869  in The Procter Gamble on September 3, 2024 and sell it today you would earn a total of  714.00  from holding The Procter Gamble or generate 10.39% return on investment over 90 days.

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

Telefonaktiebolaget LM Ericsso  vs.  The Procter Gamble

Telefonaktiebolaget

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Telefonaktiebolaget LM Ericsson are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Telefonaktiebolaget sustained solid returns over the last few months and may actually be approaching a breakup point.

Procter Gamble

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Procter Gamble are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental indicators, Procter Gamble may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Telefonaktiebolaget and Procter Gamble

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

The idea behind Telefonaktiebolaget LM Ericsson and The Procter Gamble 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.