Correlation Between Nova and Telefonaktiebolaget

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

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

Diversification Opportunities for Nova and Telefonaktiebolaget

0.0

Correlation Coefficient

Nova  Telefonaktiebolaget

Pay attention - limited upside

The 3 months correlation between Nova and Telefonaktiebolaget is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Nova and Telefonaktiebolaget LM Ericsso in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefonaktiebolaget and Nova 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 Nova 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 Nova i.e., Nova and Telefonaktiebolaget go up and down completely randomly.

Pair Corralation between Nova and Telefonaktiebolaget

Given the investment horizon of 90 days Nova is expected to generate 1.32 times more return on investment than Telefonaktiebolaget. However, Nova is 1.32 times more volatile than Telefonaktiebolaget LM Ericsson. It trades about -0.04 of its potential returns per unit of risk. Telefonaktiebolaget LM Ericsson is currently generating about -0.07 per unit of risk. If you would invest  17,893  in Nova on February 3, 2024 and sell it today you would lose (471.00) from holding Nova or give up 2.63% of portfolio value over 90 days.

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

Nova  vs.  Telefonaktiebolaget LM Ericsso

Nova

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nova are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain primary indicators, Nova demonstrated solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Nova and Telefonaktiebolaget

The main advantage of trading using opposite Nova and Telefonaktiebolaget positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nova 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 Nova 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.