Correlation Between ADTRAN and Telefonaktiebolaget

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

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

Diversification Opportunities for ADTRAN and Telefonaktiebolaget

0.58

Correlation Coefficient

ADTRAN  Telefonaktiebolaget

Very weak diversification

The 3 months correlation between ADTRAN and Telefonaktiebolaget is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding ADTRAN Inc and Telefonaktiebolaget LM Ericsso in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefonaktiebolaget and ADTRAN 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 ADTRAN Inc 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 ADTRAN i.e., ADTRAN and Telefonaktiebolaget go up and down completely randomly.

Pair Corralation between ADTRAN and Telefonaktiebolaget

Given the investment horizon of 90 days ADTRAN Inc is expected to generate 1.63 times more return on investment than Telefonaktiebolaget. However, ADTRAN is 1.63 times more volatile than Telefonaktiebolaget LM Ericsson. It trades about 0.25 of its potential returns per unit of risk. Telefonaktiebolaget LM Ericsson is currently generating about 0.1 per unit of risk. If you would invest  519.00  in ADTRAN Inc on September 5, 2024 and sell it today you would earn a total of  344.00  from holding ADTRAN Inc or generate 66.28% return on investment over 90 days.

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

ADTRAN Inc  vs.  Telefonaktiebolaget LM Ericsso

ADTRAN Inc

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ADTRAN Inc are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, ADTRAN displayed solid returns over the last few months and may actually be approaching a breakup point.

Telefonaktiebolaget

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Telefonaktiebolaget LM Ericsson are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating forward indicators, Telefonaktiebolaget exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ADTRAN and Telefonaktiebolaget

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