Correlation Between H M and Telefonaktiebolaget

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

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

Diversification Opportunities for H M and Telefonaktiebolaget

-0.3

Correlation Coefficient

H M  Telefonaktiebolaget

Very good diversification

The 3 months correlation between HM-B and Telefonaktiebolaget is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding H M Hennes and Telefonaktiebolaget LM Ericsso in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefonaktiebolaget and H M 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 H M Hennes 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 H M i.e., H M and Telefonaktiebolaget go up and down completely randomly.

Pair Corralation between H M and Telefonaktiebolaget

Assuming the 90 days trading horizon H M Hennes is expected to under-perform the Telefonaktiebolaget. But the stock apears to be less risky and, when comparing its historical volatility, H M Hennes is 1.11 times less risky than Telefonaktiebolaget. The stock trades about -0.05 of its potential returns per unit of risk. The Telefonaktiebolaget LM Ericsson is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  7,486  in Telefonaktiebolaget LM Ericsson on September 2, 2024 and sell it today you would earn a total of  1,382  from holding Telefonaktiebolaget LM Ericsson or generate 18.46% return on investment over 90 days.

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

H M Hennes  vs.  Telefonaktiebolaget LM Ericsso

H M Hennes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days H M Hennes has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, H M is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Telefonaktiebolaget

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Telefonaktiebolaget LM Ericsson are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak forward indicators, Telefonaktiebolaget sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with H M and Telefonaktiebolaget

The main advantage of trading using opposite H M and Telefonaktiebolaget positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if H M 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 H M Hennes 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.