Correlation Between Telefonaktiebolaget and Tigo Energy

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

Diversification Opportunities for Telefonaktiebolaget and Tigo Energy

-0.38

Correlation Coefficient

Telefonaktiebolaget  Tigo Energy

Very good diversification

The 3 months correlation between Telefonaktiebolaget and Tigo is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Telefonaktiebolaget LM Ericsso and Tigo Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tigo Energy 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 Tigo Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tigo Energy has no effect on the direction of Telefonaktiebolaget i.e., Telefonaktiebolaget and Tigo Energy go up and down completely randomly.

Pair Corralation between Telefonaktiebolaget and Tigo Energy

Given the investment horizon of 90 days Telefonaktiebolaget LM Ericsson is expected to generate 0.45 times more return on investment than Tigo Energy. However, Telefonaktiebolaget LM Ericsson is 2.2 times less risky than Tigo Energy. It trades about 0.41 of its potential returns per unit of risk. Tigo Energy is currently generating about -0.34 per unit of risk. If you would invest  747.00  in Telefonaktiebolaget LM Ericsson on December 4, 2024 and sell it today you would earn a total of  77.00  from holding Telefonaktiebolaget LM Ericsson or generate 10.31% return on investment over 90 days.

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

Telefonaktiebolaget LM Ericsso  vs.  Tigo Energy

Telefonaktiebolaget

Risk-Adjusted Performance

Weak

Over the last 90 days Telefonaktiebolaget LM Ericsson has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward indicators, Telefonaktiebolaget is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Tigo Energy

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tigo Energy are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Tigo Energy is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Telefonaktiebolaget and Tigo Energy

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

The idea behind Telefonaktiebolaget LM Ericsson and Tigo Energy 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.