Correlation Between Telefonaktiebolaget and Gen Digital

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

Diversification Opportunities for Telefonaktiebolaget and Gen Digital

-0.21

Correlation Coefficient

Telefonaktiebolaget  Gen Digital

Very good diversification

The 3 months correlation between Telefonaktiebolaget and Gen is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Telefonaktiebolaget LM Ericsso and Gen Digital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gen Digital 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 Gen Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gen Digital has no effect on the direction of Telefonaktiebolaget i.e., Telefonaktiebolaget and Gen Digital go up and down completely randomly.

Pair Corralation between Telefonaktiebolaget and Gen Digital

Assuming the 90 days trading horizon Telefonaktiebolaget LM Ericsson is expected to generate 1.08 times more return on investment than Gen Digital. However, Telefonaktiebolaget is 1.08 times more volatile than Gen Digital. It trades about 0.1 of its potential returns per unit of risk. Gen Digital is currently generating about 0.09 per unit of risk. If you would invest  1,291  in Telefonaktiebolaget LM Ericsson on October 22, 2024 and sell it today you would earn a total of  1,298  from holding Telefonaktiebolaget LM Ericsson or generate 100.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	86.63%
Values	Daily Returns

Telefonaktiebolaget LM Ericsso  vs.  Gen Digital

Telefonaktiebolaget

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Telefonaktiebolaget LM Ericsson are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Telefonaktiebolaget may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Gen Digital

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gen Digital are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Gen Digital sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Telefonaktiebolaget and Gen Digital

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

The idea behind Telefonaktiebolaget LM Ericsson and Gen Digital 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.