Correlation Between Neste Oil and Telefonaktiebolaget

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

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

Diversification Opportunities for Neste Oil and Telefonaktiebolaget

-0.73

Correlation Coefficient

Neste Oil  Telefonaktiebolaget

Pay attention - limited upside

The 3 months correlation between Neste and Telefonaktiebolaget is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Neste Oil Oyj and Telefonaktiebolaget LM Ericsso in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefonaktiebolaget and Neste Oil 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 Neste Oil Oyj 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 Neste Oil i.e., Neste Oil and Telefonaktiebolaget go up and down completely randomly.

Pair Corralation between Neste Oil and Telefonaktiebolaget

Assuming the 90 days trading horizon Neste Oil Oyj is expected to under-perform the Telefonaktiebolaget. In addition to that, Neste Oil is 1.33 times more volatile than Telefonaktiebolaget LM Ericsson. It trades about -0.12 of its total potential returns per unit of risk. Telefonaktiebolaget LM Ericsson is currently generating about 0.18 per unit of volatility. If you would invest  653.00  in Telefonaktiebolaget LM Ericsson on September 14, 2024 and sell it today you would earn a total of  134.00  from holding Telefonaktiebolaget LM Ericsson or generate 20.52% return on investment over 90 days.

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

Neste Oil Oyj  vs.  Telefonaktiebolaget LM Ericsso

Neste Oil Oyj

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Neste Oil Oyj has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Telefonaktiebolaget

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Telefonaktiebolaget LM Ericsson are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak technical indicators, Telefonaktiebolaget demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Neste Oil and Telefonaktiebolaget

The main advantage of trading using opposite Neste Oil and Telefonaktiebolaget positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Neste Oil 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 Neste Oil Oyj 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.