Correlation Between Telefonaktiebolaget and Kimball Electronics

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

Diversification Opportunities for Telefonaktiebolaget and Kimball Electronics

0.44

Correlation Coefficient

Telefonaktiebolaget  Kimball Electronics

Very weak diversification

The 3 months correlation between Telefonaktiebolaget and Kimball is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Telefonaktiebolaget LM Ericsso and Kimball Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kimball Electronics 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 Kimball Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kimball Electronics has no effect on the direction of Telefonaktiebolaget i.e., Telefonaktiebolaget and Kimball Electronics go up and down completely randomly.

Pair Corralation between Telefonaktiebolaget and Kimball Electronics

Given the investment horizon of 90 days Telefonaktiebolaget LM Ericsson is expected to under-perform the Kimball Electronics. But the stock apears to be less risky and, when comparing its historical volatility, Telefonaktiebolaget LM Ericsson is 1.19 times less risky than Kimball Electronics. The stock trades about -0.01 of its potential returns per unit of risk. The Kimball Electronics is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  2,294  in Kimball Electronics on February 1, 2024 and sell it today you would lose (201.00) from holding Kimball Electronics or give up 8.76% of portfolio value over 90 days.

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

Telefonaktiebolaget LM Ericsso  vs.  Kimball Electronics

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.

Kimball Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kimball Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in June 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Telefonaktiebolaget and Kimball Electronics

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

The idea behind Telefonaktiebolaget LM Ericsson and Kimball Electronics 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.