Correlation Between Telefonaktiebolaget and Telia Company

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

Diversification Opportunities for Telefonaktiebolaget and Telia Company

-0.76

Correlation Coefficient

Telefonaktiebolaget  Telia Company

Pay attention - limited upside

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

Pair Corralation between Telefonaktiebolaget and Telia Company

Assuming the 90 days trading horizon Telefonaktiebolaget LM Ericsson is expected to generate 1.55 times more return on investment than Telia Company. However, Telefonaktiebolaget is 1.55 times more volatile than Telia Company AB. It trades about 0.19 of its potential returns per unit of risk. Telia Company AB is currently generating about -0.08 per unit of risk. If you would invest  648.00  in Telefonaktiebolaget LM Ericsson on September 12, 2024 and sell it today you would earn a total of  144.00  from holding Telefonaktiebolaget LM Ericsson or generate 22.22% return on investment over 90 days.

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

Telefonaktiebolaget LM Ericsso  vs.  Telia Company AB

Telefonaktiebolaget

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Telefonaktiebolaget LM Ericsson are ranked lower than 15 (%) 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.

Telia Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Telia Company AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong essential indicators, Telia Company is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Telefonaktiebolaget and Telia Company

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

The idea behind Telefonaktiebolaget LM Ericsson and Telia Company AB 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.