Correlation Between Telefonaktiebolaget and Hewlett Packard

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

Diversification Opportunities for Telefonaktiebolaget and Hewlett Packard

0.69

Correlation Coefficient

Telefonaktiebolaget  Hewlett Packard

Poor diversification

The 3 months correlation between Telefonaktiebolaget and Hewlett is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Telefonaktiebolaget LM Ericsso and Hewlett Packard Enterprise in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hewlett Packard Ente 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 Hewlett Packard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hewlett Packard Ente has no effect on the direction of Telefonaktiebolaget i.e., Telefonaktiebolaget and Hewlett Packard go up and down completely randomly.

Pair Corralation between Telefonaktiebolaget and Hewlett Packard

Assuming the 90 days trading horizon Telefonaktiebolaget LM Ericsson is expected to under-perform the Hewlett Packard. But the stock apears to be less risky and, when comparing its historical volatility, Telefonaktiebolaget LM Ericsson is 1.69 times less risky than Hewlett Packard. The stock trades about -0.01 of its potential returns per unit of risk. The Hewlett Packard Enterprise is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,017  in Hewlett Packard Enterprise on November 20, 2024 and sell it today you would earn a total of  52.00  from holding Hewlett Packard Enterprise or generate 2.58% return on investment over 90 days.

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

Telefonaktiebolaget LM Ericsso  vs.  Hewlett Packard Enterprise

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 nearly stable fundamental indicators, Telefonaktiebolaget is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Hewlett Packard Ente

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hewlett Packard Enterprise are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Hewlett Packard is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Telefonaktiebolaget and Hewlett Packard

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

The idea behind Telefonaktiebolaget LM Ericsson and Hewlett Packard Enterprise 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.

Check out your portfolio center.

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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.