Correlation Between Telefonaktiebolaget and Swedbank

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

Diversification Opportunities for Telefonaktiebolaget and Swedbank

0.21

Correlation Coefficient

Telefonaktiebolaget  Swedbank

Modest diversification

The 3 months correlation between Telefonaktiebolaget and Swedbank is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Telefonaktiebolaget LM Ericsso and Swedbank AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Swedbank 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 Swedbank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Swedbank AB has no effect on the direction of Telefonaktiebolaget i.e., Telefonaktiebolaget and Swedbank go up and down completely randomly.

Pair Corralation between Telefonaktiebolaget and Swedbank

Assuming the 90 days trading horizon Telefonaktiebolaget LM Ericsson is expected to generate 1.23 times more return on investment than Swedbank. However, Telefonaktiebolaget is 1.23 times more volatile than Swedbank AB. It trades about 0.21 of its potential returns per unit of risk. Swedbank AB is currently generating about 0.02 per unit of risk. If you would invest  7,408  in Telefonaktiebolaget LM Ericsson on September 14, 2024 and sell it today you would earn a total of  1,682  from holding Telefonaktiebolaget LM Ericsson or generate 22.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Telefonaktiebolaget LM Ericsso  vs.  Swedbank AB

Telefonaktiebolaget

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Telefonaktiebolaget LM Ericsson are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain forward indicators, Telefonaktiebolaget sustained solid returns over the last few months and may actually be approaching a breakup point.

Swedbank AB

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Swedbank AB are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, Swedbank 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 Swedbank

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

The idea behind Telefonaktiebolaget LM Ericsson and Swedbank 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.