Correlation Between Telefonaktiebolaget and Stora Enso

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

Diversification Opportunities for Telefonaktiebolaget and Stora Enso

-0.46

Correlation Coefficient

Telefonaktiebolaget  Stora Enso

Very good diversification

The 3 months correlation between Telefonaktiebolaget and Stora is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Telefonaktiebolaget LM Ericsso and Stora Enso Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stora Enso 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 Stora Enso. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stora Enso Oyj has no effect on the direction of Telefonaktiebolaget i.e., Telefonaktiebolaget and Stora Enso go up and down completely randomly.

Pair Corralation between Telefonaktiebolaget and Stora Enso

Assuming the 90 days trading horizon Telefonaktiebolaget is expected to generate 3.35 times less return on investment than Stora Enso. In addition to that, Telefonaktiebolaget is 1.02 times more volatile than Stora Enso Oyj. It trades about 0.03 of its total potential returns per unit of risk. Stora Enso Oyj is currently generating about 0.11 per unit of volatility. If you would invest  919.00  in Stora Enso Oyj on December 1, 2024 and sell it today you would earn a total of  118.00  from holding Stora Enso Oyj or generate 12.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.31%
Values	Daily Returns

Telefonaktiebolaget LM Ericsso  vs.  Stora Enso 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.

Stora Enso Oyj

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Stora Enso Oyj are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady technical indicators, Stora Enso demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Telefonaktiebolaget and Stora Enso

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

The idea behind Telefonaktiebolaget LM Ericsson and Stora Enso 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..