Correlation Between Telefonaktiebolaget and Applied DNA

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

Diversification Opportunities for Telefonaktiebolaget and Applied DNA

-0.72

Correlation Coefficient

Telefonaktiebolaget  Applied DNA

Pay attention - limited upside

The 3 months correlation between Telefonaktiebolaget and Applied is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Telefonaktiebolaget LM Ericsso and Applied DNA Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied DNA Sciences 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 Applied DNA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied DNA Sciences has no effect on the direction of Telefonaktiebolaget i.e., Telefonaktiebolaget and Applied DNA go up and down completely randomly.

Pair Corralation between Telefonaktiebolaget and Applied DNA

Given the investment horizon of 90 days Telefonaktiebolaget LM Ericsson is expected to generate 0.18 times more return on investment than Applied DNA. However, Telefonaktiebolaget LM Ericsson is 5.58 times less risky than Applied DNA. It trades about 0.11 of its potential returns per unit of risk. Applied DNA Sciences is currently generating about -0.17 per unit of risk. If you would invest  724.00  in Telefonaktiebolaget LM Ericsson on September 15, 2024 and sell it today you would earn a total of  106.00  from holding Telefonaktiebolaget LM Ericsson or generate 14.64% 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.  Applied DNA Sciences

Telefonaktiebolaget

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Telefonaktiebolaget LM Ericsson are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile forward indicators, Telefonaktiebolaget exhibited solid returns over the last few months and may actually be approaching a breakup point.

Applied DNA Sciences

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Applied DNA Sciences has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Telefonaktiebolaget and Applied DNA

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

The idea behind Telefonaktiebolaget LM Ericsson and Applied DNA Sciences 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.