Correlation Between Industrivarden and Telefonaktiebolaget

Can any of the company-specific risk be diversified away by investing in both Industrivarden and Telefonaktiebolaget 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 Industrivarden and Telefonaktiebolaget into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Industrivarden AB ser and Telefonaktiebolaget LM Ericsson, you can compare the effects of market volatilities on Industrivarden and Telefonaktiebolaget 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 Industrivarden with a short position of Telefonaktiebolaget. Check out your portfolio center. Please also check ongoing floating volatility patterns of Industrivarden and Telefonaktiebolaget.

Diversification Opportunities for Industrivarden and Telefonaktiebolaget

0.04

Correlation Coefficient

Industrivarden  Telefonaktiebolaget

Significant diversification

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

Pair Corralation between Industrivarden and Telefonaktiebolaget

Assuming the 90 days trading horizon Industrivarden AB ser is expected to under-perform the Telefonaktiebolaget. But the stock apears to be less risky and, when comparing its historical volatility, Industrivarden AB ser is 1.6 times less risky than Telefonaktiebolaget. The stock trades about -0.01 of its potential returns per unit of risk. The Telefonaktiebolaget LM Ericsson is currently generating about 0.17 of returns per unit of risk over similar time horizon. 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

Industrivarden AB ser  vs.  Telefonaktiebolaget LM Ericsso

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.

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.

Pair Trading with Industrivarden and Telefonaktiebolaget

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

The idea behind Industrivarden AB ser and Telefonaktiebolaget LM Ericsson 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.