Correlation Between Telefonaktiebolaget and Nokia Oyj

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

Diversification Opportunities for Telefonaktiebolaget and Nokia Oyj

0.76

Correlation Coefficient

Telefonaktiebolaget  Nokia Oyj

Poor diversification

The 3 months correlation between Telefonaktiebolaget and Nokia is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Telefonaktiebolaget LM Ericsso and Nokia Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nokia Oyj 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 Nokia Oyj. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nokia Oyj has no effect on the direction of Telefonaktiebolaget i.e., Telefonaktiebolaget and Nokia Oyj go up and down completely randomly.

Pair Corralation between Telefonaktiebolaget and Nokia Oyj

Assuming the 90 days trading horizon Telefonaktiebolaget LM Ericsson is expected to generate 1.04 times more return on investment than Nokia Oyj. However, Telefonaktiebolaget is 1.04 times more volatile than Nokia Oyj. It trades about 0.18 of its potential returns per unit of risk. Nokia Oyj is currently generating about 0.11 per unit of risk. If you would invest  654.00  in Telefonaktiebolaget LM Ericsson on September 13, 2024 and sell it today you would earn a total of  132.00  from holding Telefonaktiebolaget LM Ericsson or generate 20.18% 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.  Nokia Oyj

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 fairly weak technical indicators, Telefonaktiebolaget demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Nokia Oyj

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nokia Oyj are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak technical indicators, Nokia Oyj may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Telefonaktiebolaget and Nokia Oyj

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

The idea behind Telefonaktiebolaget LM Ericsson and Nokia Oyj 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.

Check out your portfolio center.

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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.