Correlation Between ZTE and Telefonaktiebolaget

Can any of the company-specific risk be diversified away by investing in both ZTE and Telefonaktiebolaget 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 ZTE and Telefonaktiebolaget into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ZTE Corporation and Telefonaktiebolaget LM Ericsson, you can compare the effects of market volatilities on ZTE and Telefonaktiebolaget 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 ZTE with a short position of Telefonaktiebolaget. Check out your portfolio center. Please also check ongoing floating volatility patterns of ZTE and Telefonaktiebolaget.

Diversification Opportunities for ZTE and Telefonaktiebolaget

-0.32

Correlation Coefficient

ZTE  Telefonaktiebolaget

Very good diversification

The 3 months correlation between ZTE and Telefonaktiebolaget is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding ZTE Corp. and Telefonaktiebolaget LM Ericsso in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefonaktiebolaget and ZTE 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 ZTE Corporation are associated (or correlated) with Telefonaktiebolaget. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telefonaktiebolaget has no effect on the direction of ZTE i.e., ZTE and Telefonaktiebolaget go up and down completely randomly.

Pair Corralation between ZTE and Telefonaktiebolaget

Assuming the 90 days horizon ZTE Corporation is expected to generate 2.09 times more return on investment than Telefonaktiebolaget. However, ZTE is 2.09 times more volatile than Telefonaktiebolaget LM Ericsson. It trades about 0.22 of its potential returns per unit of risk. Telefonaktiebolaget LM Ericsson is currently generating about 0.03 per unit of risk. If you would invest  225.00  in ZTE Corporation on November 29, 2024 and sell it today you would earn a total of  182.00  from holding ZTE Corporation or generate 80.89% return on investment over 90 days.

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

ZTE Corp.  vs.  Telefonaktiebolaget LM Ericsso

ZTE Corporation

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ZTE Corporation are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, ZTE reported solid returns over the last few months and may actually be approaching a breakup point.

Telefonaktiebolaget

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Telefonaktiebolaget LM Ericsson are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, Telefonaktiebolaget is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with ZTE and Telefonaktiebolaget

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

The idea behind ZTE Corporation and Telefonaktiebolaget LM Ericsson 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.