Correlation Between Hitech Development and Telefonaktiebolaget

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

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

Diversification Opportunities for Hitech Development and Telefonaktiebolaget

-0.42

Correlation Coefficient

Hitech Development  Telefonaktiebolaget

Very good diversification

The 3 months correlation between Hitech and Telefonaktiebolaget is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Hitech Development Wireless and Telefonaktiebolaget LM Ericsso in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefonaktiebolaget and Hitech Development 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 Hitech Development Wireless 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 Hitech Development i.e., Hitech Development and Telefonaktiebolaget go up and down completely randomly.

Pair Corralation between Hitech Development and Telefonaktiebolaget

Assuming the 90 days trading horizon Hitech Development Wireless is expected to generate 16.46 times more return on investment than Telefonaktiebolaget. However, Hitech Development is 16.46 times more volatile than Telefonaktiebolaget LM Ericsson. It trades about 0.03 of its potential returns per unit of risk. Telefonaktiebolaget LM Ericsson is currently generating about 0.19 per unit of risk. If you would invest  0.38  in Hitech Development Wireless on October 9, 2024 and sell it today you would lose (0.22) from holding Hitech Development Wireless or give up 57.89% of portfolio value over 90 days.

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

Hitech Development Wireless  vs.  Telefonaktiebolaget LM Ericsso

Hitech Development

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hitech Development Wireless are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Hitech Development unveiled solid returns over the last few months and may actually be approaching a breakup point.

Telefonaktiebolaget

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Telefonaktiebolaget LM Ericsson are ranked lower than 14 (%) 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.

Pair Trading with Hitech Development and Telefonaktiebolaget

The main advantage of trading using opposite Hitech Development and Telefonaktiebolaget positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hitech Development 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 Hitech Development Wireless 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.