Correlation Between Knowles Cor and Telefonaktiebolaget

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

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

Diversification Opportunities for Knowles Cor and Telefonaktiebolaget

0.49

Correlation Coefficient

Knowles Cor  Telefonaktiebolaget

Very weak diversification

The 3 months correlation between Knowles and Telefonaktiebolaget is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Knowles Cor and Telefonaktiebolaget LM Ericsso in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefonaktiebolaget and Knowles Cor 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 Knowles Cor 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 Knowles Cor i.e., Knowles Cor and Telefonaktiebolaget go up and down completely randomly.

Pair Corralation between Knowles Cor and Telefonaktiebolaget

Allowing for the 90-day total investment horizon Knowles Cor is expected to generate 0.92 times more return on investment than Telefonaktiebolaget. However, Knowles Cor is 1.09 times less risky than Telefonaktiebolaget. It trades about -0.04 of its potential returns per unit of risk. Telefonaktiebolaget LM Ericsson is currently generating about -0.05 per unit of risk. If you would invest  1,698  in Knowles Cor on January 26, 2024 and sell it today you would lose (84.00) from holding Knowles Cor or give up 4.95% of portfolio value over 90 days.

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

Knowles Cor  vs.  Telefonaktiebolaget LM Ericsso

Knowles Cor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Knowles Cor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Knowles Cor is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Knowles Cor and Telefonaktiebolaget

The main advantage of trading using opposite Knowles Cor and Telefonaktiebolaget positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Knowles Cor 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 Knowles Cor 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.