Correlation Between Telefonaktiebolaget and Canadian Solar

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

Diversification Opportunities for Telefonaktiebolaget and Canadian Solar

-0.46

Correlation Coefficient

Telefonaktiebolaget  Canadian Solar

Very good diversification

The 3 months correlation between Telefonaktiebolaget and Canadian is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Telefonaktiebolaget LM Ericsso and Canadian Solar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Solar 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 Canadian Solar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Solar has no effect on the direction of Telefonaktiebolaget i.e., Telefonaktiebolaget and Canadian Solar go up and down completely randomly.

Pair Corralation between Telefonaktiebolaget and Canadian Solar

Given the investment horizon of 90 days Telefonaktiebolaget LM Ericsson is expected to generate 0.36 times more return on investment than Canadian Solar. However, Telefonaktiebolaget LM Ericsson is 2.77 times less risky than Canadian Solar. It trades about 0.1 of its potential returns per unit of risk. Canadian Solar is currently generating about 0.0 per unit of risk. If you would invest  733.00  in Telefonaktiebolaget LM Ericsson on September 13, 2024 and sell it today you would earn a total of  94.00  from holding Telefonaktiebolaget LM Ericsson or generate 12.82% return on investment over 90 days.

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

Telefonaktiebolaget LM Ericsso  vs.  Canadian Solar

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.

Canadian Solar

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Canadian Solar has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward indicators, Canadian Solar is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Telefonaktiebolaget and Canadian Solar

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

The idea behind Telefonaktiebolaget LM Ericsson and Canadian Solar 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 Commodity Directory module to find actively traded commodities issued by global exchanges.