Correlation Between Telefonaktiebolaget and Prevas AB

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

Diversification Opportunities for Telefonaktiebolaget and Prevas AB

0.25

Correlation Coefficient

Telefonaktiebolaget  Prevas AB

Modest diversification

The 3 months correlation between Telefonaktiebolaget and Prevas is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Telefonaktiebolaget LM Ericsso and Prevas AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prevas 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 Prevas AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prevas AB has no effect on the direction of Telefonaktiebolaget i.e., Telefonaktiebolaget and Prevas AB go up and down completely randomly.

Pair Corralation between Telefonaktiebolaget and Prevas AB

Assuming the 90 days trading horizon Telefonaktiebolaget LM Ericsson is expected to generate 1.51 times more return on investment than Prevas AB. However, Telefonaktiebolaget is 1.51 times more volatile than Prevas AB. It trades about 0.01 of its potential returns per unit of risk. Prevas AB is currently generating about -0.05 per unit of risk. If you would invest  8,890  in Telefonaktiebolaget LM Ericsson on November 29, 2024 and sell it today you would lose (20.00) from holding Telefonaktiebolaget LM Ericsson or give up 0.22% of portfolio value over 90 days.

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

Telefonaktiebolaget LM Ericsso  vs.  Prevas AB

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 somewhat strong forward indicators, Telefonaktiebolaget is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Prevas AB

Risk-Adjusted Performance

Very Weak

Over the last 90 days Prevas AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, Prevas AB is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Telefonaktiebolaget and Prevas AB

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

The idea behind Telefonaktiebolaget LM Ericsson and Prevas 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.