Correlation Between Telia Company and Telefonaktiebolaget

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

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

Diversification Opportunities for Telia Company and Telefonaktiebolaget

-0.76

Correlation Coefficient

Telia Company  Telefonaktiebolaget

Pay attention - limited upside

The 3 months correlation between Telia and Telefonaktiebolaget is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Telia Company AB and Telefonaktiebolaget LM Ericsso in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefonaktiebolaget and Telia Company 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 Telia Company AB 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 Telia Company i.e., Telia Company and Telefonaktiebolaget go up and down completely randomly.

Pair Corralation between Telia Company and Telefonaktiebolaget

Assuming the 90 days trading horizon Telia Company AB is expected to under-perform the Telefonaktiebolaget. But the stock apears to be less risky and, when comparing its historical volatility, Telia Company AB is 1.55 times less risky than Telefonaktiebolaget. The stock trades about -0.08 of its potential returns per unit of risk. The Telefonaktiebolaget LM Ericsson is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  648.00  in Telefonaktiebolaget LM Ericsson on September 12, 2024 and sell it today you would earn a total of  144.00  from holding Telefonaktiebolaget LM Ericsson or generate 22.22% return on investment over 90 days.

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

Telia Company AB  vs.  Telefonaktiebolaget LM Ericsso

Telia Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Telia Company AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong essential indicators, Telia Company 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

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Telefonaktiebolaget LM Ericsson are ranked lower than 15 (%) 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 Telia Company and Telefonaktiebolaget

The main advantage of trading using opposite Telia Company and Telefonaktiebolaget positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Telia Company 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 Telia Company AB 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.

Check out your portfolio center.

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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.