Correlation Between Telefonaktiebolaget and Veeco Instruments

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

Diversification Opportunities for Telefonaktiebolaget and Veeco Instruments

-0.51

Correlation Coefficient

Telefonaktiebolaget  Veeco Instruments

Excellent diversification

The 3 months correlation between Telefonaktiebolaget and Veeco is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Telefonaktiebolaget LM Ericsso and Veeco Instruments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Veeco Instruments 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 Veeco Instruments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Veeco Instruments has no effect on the direction of Telefonaktiebolaget i.e., Telefonaktiebolaget and Veeco Instruments go up and down completely randomly.

Pair Corralation between Telefonaktiebolaget and Veeco Instruments

Given the investment horizon of 90 days Telefonaktiebolaget LM Ericsson is expected to generate 0.9 times more return on investment than Veeco Instruments. However, Telefonaktiebolaget LM Ericsson is 1.11 times less risky than Veeco Instruments. It trades about 0.12 of its potential returns per unit of risk. Veeco Instruments is currently generating about -0.03 per unit of risk. If you would invest  718.00  in Telefonaktiebolaget LM Ericsson on September 12, 2024 and sell it today you would earn a total of  109.50  from holding Telefonaktiebolaget LM Ericsson or generate 15.25% 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.  Veeco Instruments

Telefonaktiebolaget

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Telefonaktiebolaget LM Ericsson are ranked lower than 9 (%) 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.

Veeco Instruments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Veeco Instruments has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Veeco Instruments is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Telefonaktiebolaget and Veeco Instruments

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

The idea behind Telefonaktiebolaget LM Ericsson and Veeco Instruments 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.