Correlation Between Telefonaktiebolaget and New Pacific

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

Diversification Opportunities for Telefonaktiebolaget and New Pacific

0.78

Correlation Coefficient

Telefonaktiebolaget  New Pacific

Poor diversification

The 3 months correlation between Telefonaktiebolaget and New is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Telefonaktiebolaget LM Ericsso and New Pacific Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Pacific Metals 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 New Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Pacific Metals has no effect on the direction of Telefonaktiebolaget i.e., Telefonaktiebolaget and New Pacific go up and down completely randomly.

Pair Corralation between Telefonaktiebolaget and New Pacific

Given the investment horizon of 90 days Telefonaktiebolaget LM Ericsson is expected to generate 0.4 times more return on investment than New Pacific. However, Telefonaktiebolaget LM Ericsson is 2.5 times less risky than New Pacific. It trades about 0.1 of its potential returns per unit of risk. New Pacific Metals is currently generating about 0.0 per unit of risk. If you would invest  808.00  in Telefonaktiebolaget LM Ericsson on September 13, 2024 and sell it today you would earn a total of  23.50  from holding Telefonaktiebolaget LM Ericsson or generate 2.91% return on investment over 90 days.

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

Telefonaktiebolaget LM Ericsso  vs.  New Pacific Metals

Telefonaktiebolaget

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Telefonaktiebolaget LM Ericsson are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile forward indicators, Telefonaktiebolaget exhibited solid returns over the last few months and may actually be approaching a breakup point.

New Pacific Metals

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in New Pacific Metals are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, New Pacific reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Telefonaktiebolaget and New Pacific

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

The idea behind Telefonaktiebolaget LM Ericsson and New Pacific Metals 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.