Correlation Between Telefonaktiebolaget and Natura Co

Can any of the company-specific risk be diversified away by investing in both Telefonaktiebolaget and Natura Co 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 Natura Co 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 Natura Co Holding, you can compare the effects of market volatilities on Telefonaktiebolaget and Natura Co 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 Natura Co. Check out your portfolio center. Please also check ongoing floating volatility patterns of Telefonaktiebolaget and Natura Co.

Diversification Opportunities for Telefonaktiebolaget and Natura Co

-0.55

Correlation Coefficient

Telefonaktiebolaget  Natura Co

Excellent diversification

The 3 months correlation between Telefonaktiebolaget and Natura is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Telefonaktiebolaget LM Ericsso and Natura Co Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Natura Co Holding 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 Natura Co. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Natura Co Holding has no effect on the direction of Telefonaktiebolaget i.e., Telefonaktiebolaget and Natura Co go up and down completely randomly.

Pair Corralation between Telefonaktiebolaget and Natura Co

Assuming the 90 days trading horizon Telefonaktiebolaget LM Ericsson is expected to generate 0.5 times more return on investment than Natura Co. However, Telefonaktiebolaget LM Ericsson is 1.99 times less risky than Natura Co. It trades about 0.09 of its potential returns per unit of risk. Natura Co Holding is currently generating about -0.11 per unit of risk. If you would invest  2,402  in Telefonaktiebolaget LM Ericsson on October 6, 2024 and sell it today you would earn a total of  108.00  from holding Telefonaktiebolaget LM Ericsson or generate 4.5% return on investment over 90 days.

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

Telefonaktiebolaget LM Ericsso  vs.  Natura Co Holding

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.

Natura Co Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Natura Co Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Telefonaktiebolaget and Natura Co

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

The idea behind Telefonaktiebolaget LM Ericsson and Natura Co Holding 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.