Correlation Between Motorola Solutions and Telefonaktiebolaget

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

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

Diversification Opportunities for Motorola Solutions and Telefonaktiebolaget

0.78

Correlation Coefficient

Motorola Solutions  Telefonaktiebolaget

Poor diversification

The 3 months correlation between Motorola and Telefonaktiebolaget is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Motorola Solutions and Telefonaktiebolaget LM Ericsso in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefonaktiebolaget and Motorola Solutions 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 Motorola Solutions 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 Motorola Solutions i.e., Motorola Solutions and Telefonaktiebolaget go up and down completely randomly.

Pair Corralation between Motorola Solutions and Telefonaktiebolaget

Assuming the 90 days trading horizon Motorola Solutions is expected to generate 2.12 times less return on investment than Telefonaktiebolaget. But when comparing it to its historical volatility, Motorola Solutions is 1.9 times less risky than Telefonaktiebolaget. It trades about 0.18 of its potential returns per unit of risk. Telefonaktiebolaget LM Ericsson is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  536.00  in Telefonaktiebolaget LM Ericsson on September 2, 2024 and sell it today you would earn a total of  234.00  from holding Telefonaktiebolaget LM Ericsson or generate 43.66% return on investment over 90 days.

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

Motorola Solutions  vs.  Telefonaktiebolaget LM Ericsso

Motorola Solutions

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Motorola Solutions are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Motorola Solutions reported solid returns over the last few months and may actually be approaching a breakup point.

Telefonaktiebolaget

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Telefonaktiebolaget LM Ericsson are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Telefonaktiebolaget reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Motorola Solutions and Telefonaktiebolaget

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