Correlation Between Nordea Bank and Telia Company

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

By analyzing existing cross correlation between Nordea Bank Abp and Telia Company AB, you can compare the effects of market volatilities on Nordea Bank and Telia Company 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 Nordea Bank with a short position of Telia Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nordea Bank and Telia Company.

Diversification Opportunities for Nordea Bank and Telia Company

-0.47

Correlation Coefficient

Nordea Bank  Telia Company

Very good diversification

The 3 months correlation between Nordea and Telia is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Nordea Bank Abp and Telia Company AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telia Company and Nordea Bank 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 Nordea Bank Abp are associated (or correlated) with Telia Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telia Company has no effect on the direction of Nordea Bank i.e., Nordea Bank and Telia Company go up and down completely randomly.

Pair Corralation between Nordea Bank and Telia Company

Assuming the 90 days trading horizon Nordea Bank Abp is expected to under-perform the Telia Company. But the stock apears to be less risky and, when comparing its historical volatility, Nordea Bank Abp is 1.25 times less risky than Telia Company. The stock trades about -0.02 of its potential returns per unit of risk. The Telia Company AB is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  267.00  in Telia Company AB on September 1, 2024 and sell it today you would earn a total of  10.00  from holding Telia Company AB or generate 3.75% return on investment over 90 days.

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

Nordea Bank Abp  vs.  Telia Company AB

Nordea Bank Abp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Telia Company

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Nordea Bank and Telia Company

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

The idea behind Nordea Bank Abp and Telia Company AB 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.