Correlation Between Telefonaktiebolaget and Betolar Oyj

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

Diversification Opportunities for Telefonaktiebolaget and Betolar Oyj

-0.44

Correlation Coefficient

Telefonaktiebolaget  Betolar Oyj

Very good diversification

The 3 months correlation between Telefonaktiebolaget and Betolar is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Telefonaktiebolaget LM Ericsso and Betolar Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Betolar Oyj 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 Betolar Oyj. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Betolar Oyj has no effect on the direction of Telefonaktiebolaget i.e., Telefonaktiebolaget and Betolar Oyj go up and down completely randomly.

Pair Corralation between Telefonaktiebolaget and Betolar Oyj

Assuming the 90 days trading horizon Telefonaktiebolaget LM Ericsson is expected to under-perform the Betolar Oyj. But the stock apears to be less risky and, when comparing its historical volatility, Telefonaktiebolaget LM Ericsson is 3.43 times less risky than Betolar Oyj. The stock trades about -0.03 of its potential returns per unit of risk. The Betolar Oyj is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  77.00  in Betolar Oyj on December 30, 2024 and sell it today you would earn a total of  18.00  from holding Betolar Oyj or generate 23.38% 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.  Betolar Oyj

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 fairly strong technical indicators, Telefonaktiebolaget is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Betolar Oyj

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Betolar Oyj are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Betolar Oyj reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Telefonaktiebolaget and Betolar Oyj

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

The idea behind Telefonaktiebolaget LM Ericsson and Betolar Oyj 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.