Correlation Between Telefonaktiebolaget and ZTE

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

Diversification Opportunities for Telefonaktiebolaget and ZTE

0.78

Correlation Coefficient

Telefonaktiebolaget  ZTE

Poor diversification

The 3 months correlation between Telefonaktiebolaget and ZTE is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Telefonaktiebolaget LM Ericsso and ZTE Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ZTE Corporation 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 ZTE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ZTE Corporation has no effect on the direction of Telefonaktiebolaget i.e., Telefonaktiebolaget and ZTE go up and down completely randomly.

Pair Corralation between Telefonaktiebolaget and ZTE

Assuming the 90 days trading horizon Telefonaktiebolaget LM Ericsson is expected to generate 0.69 times more return on investment than ZTE. However, Telefonaktiebolaget LM Ericsson is 1.45 times less risky than ZTE. It trades about 0.18 of its potential returns per unit of risk. ZTE Corporation is currently generating about 0.1 per unit of risk. If you would invest  542.00  in Telefonaktiebolaget LM Ericsson on September 3, 2024 and sell it today you would earn a total of  227.00  from holding Telefonaktiebolaget LM Ericsson or generate 41.88% return on investment over 90 days.

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

Telefonaktiebolaget LM Ericsso  vs.  ZTE Corp.

Telefonaktiebolaget

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Telefonaktiebolaget LM Ericsson are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Telefonaktiebolaget reported solid returns over the last few months and may actually be approaching a breakup point.

ZTE Corporation

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ZTE Corporation are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, ZTE reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Telefonaktiebolaget and ZTE

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

The idea behind Telefonaktiebolaget LM Ericsson and ZTE Corporation 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .