Correlation Between Telefonaktiebolaget and ZTE Corp

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

Diversification Opportunities for Telefonaktiebolaget and ZTE Corp

-0.11

Correlation Coefficient

Telefonaktiebolaget  ZTE Corp

Good diversification

The 3 months correlation between Telefonaktiebolaget and ZTE is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Telefonaktiebolaget LM Ericsso and ZTE Corp H in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ZTE Corp H 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 ZTE Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ZTE Corp H has no effect on the direction of Telefonaktiebolaget i.e., Telefonaktiebolaget and ZTE Corp go up and down completely randomly.

Pair Corralation between Telefonaktiebolaget and ZTE Corp

Assuming the 90 days horizon Telefonaktiebolaget LM Ericsson is expected to generate 0.6 times more return on investment than ZTE Corp. However, Telefonaktiebolaget LM Ericsson is 1.66 times less risky than ZTE Corp. It trades about -0.01 of its potential returns per unit of risk. ZTE Corp H is currently generating about -0.05 per unit of risk. If you would invest  532.00  in Telefonaktiebolaget LM Ericsson on January 20, 2024 and sell it today you would lose (40.00) from holding Telefonaktiebolaget LM Ericsson or give up 7.52% 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.  ZTE Corp H

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 conflicting performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

ZTE Corp H

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ZTE Corp H are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, ZTE Corp may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Telefonaktiebolaget and ZTE Corp

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

The idea behind Telefonaktiebolaget LM Ericsson and ZTE Corp H 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.