Correlation Between Telefonaktiebolaget and Industrivarden

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

Diversification Opportunities for Telefonaktiebolaget and Industrivarden

0.04

Correlation Coefficient

Telefonaktiebolaget  Industrivarden

Significant diversification

The 3 months correlation between Telefonaktiebolaget and Industrivarden is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Telefonaktiebolaget LM Ericsso and Industrivarden AB ser in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industrivarden AB ser 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 Industrivarden. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industrivarden AB ser has no effect on the direction of Telefonaktiebolaget i.e., Telefonaktiebolaget and Industrivarden go up and down completely randomly.

Pair Corralation between Telefonaktiebolaget and Industrivarden

Assuming the 90 days trading horizon Telefonaktiebolaget LM Ericsson is expected to generate 1.6 times more return on investment than Industrivarden. However, Telefonaktiebolaget is 1.6 times more volatile than Industrivarden AB ser. It trades about 0.17 of its potential returns per unit of risk. Industrivarden AB ser is currently generating about -0.01 per unit of risk. If you would invest  7,517  in Telefonaktiebolaget LM Ericsson on September 3, 2024 and sell it today you would earn a total of  1,351  from holding Telefonaktiebolaget LM Ericsson or generate 17.97% return on investment over 90 days.

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

Telefonaktiebolaget LM Ericsso  vs.  Industrivarden AB ser

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 somewhat uncertain forward indicators, Telefonaktiebolaget sustained solid returns over the last few months and may actually be approaching a breakup point.

Industrivarden AB ser

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Telefonaktiebolaget LM Ericsson and Industrivarden AB ser 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.