Correlation Between Telefonaktiebolaget and Zebra Technologies

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

Diversification Opportunities for Telefonaktiebolaget and Zebra Technologies

0.8

Correlation Coefficient

Telefonaktiebolaget  Zebra Technologies

Very poor diversification

The 3 months correlation between Telefonaktiebolaget and Zebra is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Telefonaktiebolaget LM Ericsso and Zebra Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zebra Technologies 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 Zebra Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zebra Technologies has no effect on the direction of Telefonaktiebolaget i.e., Telefonaktiebolaget and Zebra Technologies go up and down completely randomly.

Pair Corralation between Telefonaktiebolaget and Zebra Technologies

Assuming the 90 days trading horizon Telefonaktiebolaget LM Ericsson is expected to generate 0.64 times more return on investment than Zebra Technologies. However, Telefonaktiebolaget LM Ericsson is 1.57 times less risky than Zebra Technologies. It trades about -0.07 of its potential returns per unit of risk. Zebra Technologies is currently generating about -0.1 per unit of risk. If you would invest  2,532  in Telefonaktiebolaget LM Ericsson on October 6, 2024 and sell it today you would lose (22.00) from holding Telefonaktiebolaget LM Ericsson or give up 0.87% of portfolio value over 90 days.

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

Telefonaktiebolaget LM Ericsso  vs.  Zebra Technologies

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.

Zebra Technologies

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Zebra Technologies are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental drivers, Zebra Technologies sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Telefonaktiebolaget and Zebra Technologies

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

The idea behind Telefonaktiebolaget LM Ericsson and Zebra Technologies 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.