Correlation Between IShares Trust and Telefonaktiebolaget

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

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

Diversification Opportunities for IShares Trust and Telefonaktiebolaget

0.53

Correlation Coefficient

IShares Trust  Telefonaktiebolaget

Very weak diversification

The 3 months correlation between IShares and Telefonaktiebolaget is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding iShares Trust and Telefonaktiebolaget LM Ericsso in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefonaktiebolaget and IShares Trust 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 iShares Trust 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 IShares Trust i.e., IShares Trust and Telefonaktiebolaget go up and down completely randomly.

Pair Corralation between IShares Trust and Telefonaktiebolaget

Assuming the 90 days trading horizon iShares Trust is expected to under-perform the Telefonaktiebolaget. But the etf apears to be less risky and, when comparing its historical volatility, iShares Trust is 1.32 times less risky than Telefonaktiebolaget. The etf trades about -0.03 of its potential returns per unit of risk. The Telefonaktiebolaget LM Ericsson is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  2,492  in Telefonaktiebolaget LM Ericsson on December 4, 2024 and sell it today you would lose (82.00) from holding Telefonaktiebolaget LM Ericsson or give up 3.29% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.67%
Values	Daily Returns

iShares Trust   vs.  Telefonaktiebolaget LM Ericsso

iShares Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, IShares Trust 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

Very Weak

Over the last 90 days Telefonaktiebolaget LM Ericsson has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Telefonaktiebolaget is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares Trust and Telefonaktiebolaget

The main advantage of trading using opposite IShares Trust and Telefonaktiebolaget positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Trust 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 iShares Trust 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.