Correlation Between Telefonaktiebolaget and AB Volvo

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

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

Diversification Opportunities for Telefonaktiebolaget and AB Volvo

0.22

Correlation Coefficient

Telefonaktiebolaget  AB Volvo

Modest diversification

The 3 months correlation between Telefonaktiebolaget and VOLV-B is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Telefonaktiebolaget LM Ericsso and AB Volvo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AB Volvo and Telefonaktiebolaget 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 Telefonaktiebolaget LM Ericsson are associated (or correlated) with AB Volvo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AB Volvo has no effect on the direction of Telefonaktiebolaget i.e., Telefonaktiebolaget and AB Volvo go up and down completely randomly.

Pair Corralation between Telefonaktiebolaget and AB Volvo

Assuming the 90 days trading horizon Telefonaktiebolaget LM Ericsson is expected to generate 1.37 times more return on investment than AB Volvo. However, Telefonaktiebolaget is 1.37 times more volatile than AB Volvo. It trades about 0.26 of its potential returns per unit of risk. AB Volvo is currently generating about 0.08 per unit of risk. If you would invest  5,720  in Telefonaktiebolaget LM Ericsson on February 21, 2024 and sell it today you would earn a total of  480.00  from holding Telefonaktiebolaget LM Ericsson or generate 8.39% return on investment over 90 days.

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

Telefonaktiebolaget LM Ericsso  vs.  AB Volvo

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

AB Volvo

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AB Volvo are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, AB Volvo may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Telefonaktiebolaget and AB Volvo

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

The idea behind Telefonaktiebolaget LM Ericsson and AB Volvo 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.