Correlation Between Telefonaktiebolaget and AS IP

Can any of the company-specific risk be diversified away by investing in both Telefonaktiebolaget and AS IP 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 AS IP 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 AS IP Tech, you can compare the effects of market volatilities on Telefonaktiebolaget and AS IP 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 AS IP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Telefonaktiebolaget and AS IP.

Diversification Opportunities for Telefonaktiebolaget and AS IP

-0.21

Correlation Coefficient

Telefonaktiebolaget  AS IP

Very good diversification

The 3 months correlation between Telefonaktiebolaget and IPTK is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Telefonaktiebolaget LM Ericsso and AS IP Tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AS IP Tech 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 AS IP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AS IP Tech has no effect on the direction of Telefonaktiebolaget i.e., Telefonaktiebolaget and AS IP go up and down completely randomly.

Pair Corralation between Telefonaktiebolaget and AS IP

Given the investment horizon of 90 days Telefonaktiebolaget LM Ericsson is expected to under-perform the AS IP. But the stock apears to be less risky and, when comparing its historical volatility, Telefonaktiebolaget LM Ericsson is 6.73 times less risky than AS IP. The stock trades about -0.02 of its potential returns per unit of risk. The AS IP Tech is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  9.00  in AS IP Tech on February 3, 2024 and sell it today you would lose (8.84) from holding AS IP Tech or give up 98.22% of portfolio value over 90 days.

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

Telefonaktiebolaget LM Ericsso  vs.  AS IP Tech

Telefonaktiebolaget

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Telefonaktiebolaget LM Ericsson has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward indicators, Telefonaktiebolaget is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

AS IP Tech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AS IP Tech has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, AS IP is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Telefonaktiebolaget and AS IP

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

The idea behind Telefonaktiebolaget LM Ericsson and AS IP Tech 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.

Check out your portfolio center.

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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.