Correlation Between Telefonaktiebolaget and NLIGHT

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

Diversification Opportunities for Telefonaktiebolaget and NLIGHT

0.41

Correlation Coefficient

Telefonaktiebolaget  NLIGHT

Very weak diversification

The 3 months correlation between Telefonaktiebolaget and NLIGHT is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Telefonaktiebolaget LM Ericsso and nLIGHT Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on nLIGHT Inc 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 NLIGHT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of nLIGHT Inc has no effect on the direction of Telefonaktiebolaget i.e., Telefonaktiebolaget and NLIGHT go up and down completely randomly.

Pair Corralation between Telefonaktiebolaget and NLIGHT

Given the investment horizon of 90 days Telefonaktiebolaget LM Ericsson is expected to generate 0.82 times more return on investment than NLIGHT. However, Telefonaktiebolaget LM Ericsson is 1.21 times less risky than NLIGHT. It trades about 0.09 of its potential returns per unit of risk. nLIGHT Inc is currently generating about -0.03 per unit of risk. If you would invest  532.00  in Telefonaktiebolaget LM Ericsson on March 19, 2024 and sell it today you would earn a total of  49.00  from holding Telefonaktiebolaget LM Ericsson or generate 9.21% return on investment over 90 days.

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

Telefonaktiebolaget LM Ericsso  vs.  nLIGHT Inc

Telefonaktiebolaget

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Telefonaktiebolaget LM Ericsson are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak forward indicators, Telefonaktiebolaget may actually be approaching a critical reversion point that can send shares even higher in July 2024.

nLIGHT Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days nLIGHT Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, NLIGHT is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Telefonaktiebolaget and NLIGHT

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

The idea behind Telefonaktiebolaget LM Ericsson and nLIGHT Inc 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.