Correlation Between Telefonaktiebolaget and KebNi AB

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

Diversification Opportunities for Telefonaktiebolaget and KebNi AB

-0.68

Correlation Coefficient

Telefonaktiebolaget  KebNi AB

Excellent diversification

The 3 months correlation between Telefonaktiebolaget and KebNi is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Telefonaktiebolaget LM Ericsso and KebNi AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KebNi AB 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 KebNi AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KebNi AB has no effect on the direction of Telefonaktiebolaget i.e., Telefonaktiebolaget and KebNi AB go up and down completely randomly.

Pair Corralation between Telefonaktiebolaget and KebNi AB

Assuming the 90 days trading horizon Telefonaktiebolaget LM Ericsson is expected to generate 0.43 times more return on investment than KebNi AB. However, Telefonaktiebolaget LM Ericsson is 2.31 times less risky than KebNi AB. It trades about 0.15 of its potential returns per unit of risk. KebNi AB is currently generating about -0.04 per unit of risk. If you would invest  7,732  in Telefonaktiebolaget LM Ericsson on September 26, 2024 and sell it today you would earn a total of  1,178  from holding Telefonaktiebolaget LM Ericsson or generate 15.24% return on investment over 90 days.

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

Telefonaktiebolaget LM Ericsso  vs.  KebNi AB

Telefonaktiebolaget

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Telefonaktiebolaget LM Ericsson are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak forward indicators, Telefonaktiebolaget sustained solid returns over the last few months and may actually be approaching a breakup point.

KebNi AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KebNi AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Telefonaktiebolaget and KebNi AB

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

The idea behind Telefonaktiebolaget LM Ericsson and KebNi AB 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.