Correlation Between Telefonaktiebolaget and Kempower Oyj

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

Diversification Opportunities for Telefonaktiebolaget and Kempower Oyj

-0.13

Correlation Coefficient

Telefonaktiebolaget  Kempower Oyj

Good diversification

The 3 months correlation between Telefonaktiebolaget and Kempower is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Telefonaktiebolaget LM Ericsso and Kempower Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kempower 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 Kempower Oyj. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kempower Oyj has no effect on the direction of Telefonaktiebolaget i.e., Telefonaktiebolaget and Kempower Oyj go up and down completely randomly.

Pair Corralation between Telefonaktiebolaget and Kempower Oyj

Assuming the 90 days trading horizon Telefonaktiebolaget is expected to generate 18.1 times less return on investment than Kempower Oyj. But when comparing it to its historical volatility, Telefonaktiebolaget LM Ericsson is 1.82 times less risky than Kempower Oyj. It trades about 0.02 of its potential returns per unit of risk. Kempower Oyj is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  1,028  in Kempower Oyj on December 3, 2024 and sell it today you would earn a total of  342.00  from holding Kempower Oyj or generate 33.27% return on investment over 90 days.

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

Telefonaktiebolaget LM Ericsso  vs.  Kempower Oyj

Telefonaktiebolaget

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Telefonaktiebolaget LM Ericsson are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Kempower Oyj

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kempower Oyj are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Kempower Oyj reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Telefonaktiebolaget and Kempower Oyj

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

The idea behind Telefonaktiebolaget LM Ericsson and Kempower 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.