Correlation Between Telefonaktiebolaget and IShares Trust

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

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

Diversification Opportunities for Telefonaktiebolaget and IShares Trust

0.73

Correlation Coefficient

Telefonaktiebolaget  IShares Trust

Poor diversification

The 3 months correlation between Telefonaktiebolaget and IShares is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Telefonaktiebolaget LM Ericsso and iShares Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Trust and Telefonaktiebolaget 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 Telefonaktiebolaget LM Ericsson are associated (or correlated) with IShares Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Trust has no effect on the direction of Telefonaktiebolaget i.e., Telefonaktiebolaget and IShares Trust go up and down completely randomly.

Pair Corralation between Telefonaktiebolaget and IShares Trust

Assuming the 90 days trading horizon Telefonaktiebolaget LM Ericsson is expected to generate 1.66 times more return on investment than IShares Trust. However, Telefonaktiebolaget is 1.66 times more volatile than iShares Trust . It trades about 0.17 of its potential returns per unit of risk. iShares Trust is currently generating about 0.07 per unit of risk. If you would invest  2,025  in Telefonaktiebolaget LM Ericsson on September 14, 2024 and sell it today you would earn a total of  501.00  from holding Telefonaktiebolaget LM Ericsson or generate 24.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

Telefonaktiebolaget LM Ericsso  vs.  iShares Trust

Telefonaktiebolaget

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Telefonaktiebolaget LM Ericsson are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Telefonaktiebolaget sustained solid returns over the last few months and may actually be approaching a breakup point.

iShares Trust

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Trust are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, IShares Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Telefonaktiebolaget and IShares Trust

The main advantage of trading using opposite Telefonaktiebolaget and IShares Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Telefonaktiebolaget position performs unexpectedly, IShares Trust 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 IShares Trust will offset losses from the drop in IShares Trust's long position.

The idea behind Telefonaktiebolaget LM Ericsson and iShares Trust 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.