Correlation Between Telefonaktiebolaget and FastPartner

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

Diversification Opportunities for Telefonaktiebolaget and FastPartner

-0.54

Correlation Coefficient

Telefonaktiebolaget  FastPartner

Excellent diversification

The 3 months correlation between Telefonaktiebolaget and FastPartner is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Telefonaktiebolaget LM Ericsso and FastPartner AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FastPartner AB 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 FastPartner. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FastPartner AB has no effect on the direction of Telefonaktiebolaget i.e., Telefonaktiebolaget and FastPartner go up and down completely randomly.

Pair Corralation between Telefonaktiebolaget and FastPartner

Assuming the 90 days trading horizon Telefonaktiebolaget LM Ericsson is expected to generate 0.42 times more return on investment than FastPartner. However, Telefonaktiebolaget LM Ericsson is 2.4 times less risky than FastPartner. It trades about 0.1 of its potential returns per unit of risk. FastPartner AB is currently generating about 0.03 per unit of risk. If you would invest  8,900  in Telefonaktiebolaget LM Ericsson on September 6, 2024 and sell it today you would earn a total of  140.00  from holding Telefonaktiebolaget LM Ericsson or generate 1.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.65%
Values	Daily Returns

Telefonaktiebolaget LM Ericsso  vs.  FastPartner AB

Telefonaktiebolaget

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Telefonaktiebolaget LM Ericsson are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain forward indicators, Telefonaktiebolaget sustained solid returns over the last few months and may actually be approaching a breakup point.

FastPartner AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FastPartner AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, FastPartner 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 FastPartner

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

The idea behind Telefonaktiebolaget LM Ericsson and FastPartner 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.