Correlation Between Investor and Telefonaktiebolaget

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

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

Diversification Opportunities for Investor and Telefonaktiebolaget

-0.18

Correlation Coefficient

Investor  Telefonaktiebolaget

Good diversification

The 3 months correlation between Investor and Telefonaktiebolaget is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Investor AB ser and Telefonaktiebolaget LM Ericsso in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefonaktiebolaget and Investor 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 Investor AB ser 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 Investor i.e., Investor and Telefonaktiebolaget go up and down completely randomly.

Pair Corralation between Investor and Telefonaktiebolaget

Assuming the 90 days trading horizon Investor AB ser is expected to under-perform the Telefonaktiebolaget. But the stock apears to be less risky and, when comparing its historical volatility, Investor AB ser is 1.82 times less risky than Telefonaktiebolaget. The stock trades about -0.04 of its potential returns per unit of risk. The Telefonaktiebolaget LM Ericsson is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  7,476  in Telefonaktiebolaget LM Ericsson on August 31, 2024 and sell it today you would earn a total of  1,464  from holding Telefonaktiebolaget LM Ericsson or generate 19.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Investor AB ser  vs.  Telefonaktiebolaget LM Ericsso

Investor AB ser

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Investor AB ser has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Investor is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 weak forward indicators, Telefonaktiebolaget sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Investor and Telefonaktiebolaget

The main advantage of trading using opposite Investor and Telefonaktiebolaget positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Investor 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 Investor AB ser 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.