Correlation Between Telefonaktiebolaget and CommScope Holding

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

Diversification Opportunities for Telefonaktiebolaget and CommScope Holding

0.35

Correlation Coefficient

Telefonaktiebolaget  CommScope Holding

Weak diversification

The 3 months correlation between Telefonaktiebolaget and CommScope is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Telefonaktiebolaget LM Ericsso and CommScope Holding Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CommScope Holding 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 CommScope Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CommScope Holding has no effect on the direction of Telefonaktiebolaget i.e., Telefonaktiebolaget and CommScope Holding go up and down completely randomly.

Pair Corralation between Telefonaktiebolaget and CommScope Holding

Assuming the 90 days trading horizon Telefonaktiebolaget LM Ericsson is expected to generate 0.27 times more return on investment than CommScope Holding. However, Telefonaktiebolaget LM Ericsson is 3.77 times less risky than CommScope Holding. It trades about 0.09 of its potential returns per unit of risk. CommScope Holding Co is currently generating about -0.12 per unit of risk. If you would invest  5,611  in Telefonaktiebolaget LM Ericsson on January 26, 2024 and sell it today you would earn a total of  125.00  from holding Telefonaktiebolaget LM Ericsson or generate 2.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Telefonaktiebolaget LM Ericsso  vs.  CommScope Holding Co

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. Despite somewhat strong basic indicators, Telefonaktiebolaget is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

CommScope Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CommScope Holding Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in May 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Telefonaktiebolaget and CommScope Holding

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

The idea behind Telefonaktiebolaget LM Ericsson and CommScope Holding Co 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.