Correlation Between Sanoma Oyj and Telefonaktiebolaget

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

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

Diversification Opportunities for Sanoma Oyj and Telefonaktiebolaget

0.63

Correlation Coefficient

Sanoma Oyj  Telefonaktiebolaget

Poor diversification

The 3 months correlation between Sanoma and Telefonaktiebolaget is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Sanoma Oyj and Telefonaktiebolaget LM Ericsso in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefonaktiebolaget and Sanoma Oyj 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 Sanoma 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 Sanoma Oyj i.e., Sanoma Oyj and Telefonaktiebolaget go up and down completely randomly.

Pair Corralation between Sanoma Oyj and Telefonaktiebolaget

Assuming the 90 days trading horizon Sanoma Oyj is expected to generate 0.98 times more return on investment than Telefonaktiebolaget. However, Sanoma Oyj is 1.03 times less risky than Telefonaktiebolaget. It trades about 0.36 of its potential returns per unit of risk. Telefonaktiebolaget LM Ericsson is currently generating about 0.05 per unit of risk. If you would invest  704.00  in Sanoma Oyj on September 28, 2024 and sell it today you would earn a total of  75.00  from holding Sanoma Oyj or generate 10.65% return on investment over 90 days.

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

Sanoma Oyj  vs.  Telefonaktiebolaget LM Ericsso

Sanoma Oyj

Risk-Adjusted Performance

14 of 100

Good

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

Telefonaktiebolaget

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Telefonaktiebolaget LM Ericsson are ranked lower than 10 (%) 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 Sanoma Oyj and Telefonaktiebolaget

The main advantage of trading using opposite Sanoma Oyj and Telefonaktiebolaget positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sanoma Oyj 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 Sanoma 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.