Correlation Between Telefonaktiebolaget and Ciena Corp

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

Diversification Opportunities for Telefonaktiebolaget and Ciena Corp

-0.6

Correlation Coefficient

Telefonaktiebolaget  Ciena Corp

Excellent diversification

The 3 months correlation between Telefonaktiebolaget and Ciena is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Telefonaktiebolaget LM Ericsso and Ciena Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ciena Corp 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 Ciena Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ciena Corp has no effect on the direction of Telefonaktiebolaget i.e., Telefonaktiebolaget and Ciena Corp go up and down completely randomly.

Pair Corralation between Telefonaktiebolaget and Ciena Corp

Given the investment horizon of 90 days Telefonaktiebolaget LM Ericsson is expected to under-perform the Ciena Corp. But the stock apears to be less risky and, when comparing its historical volatility, Telefonaktiebolaget LM Ericsson is 1.61 times less risky than Ciena Corp. The stock trades about -0.12 of its potential returns per unit of risk. The Ciena Corp is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  7,334  in Ciena Corp on May 7, 2025 and sell it today you would earn a total of  1,933  from holding Ciena Corp or generate 26.36% return on investment over 90 days.

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

Telefonaktiebolaget LM Ericsso  vs.  Ciena Corp

Telefonaktiebolaget

Risk-Adjusted Performance

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 latest conflicting performance, the Stock's forward indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Ciena Corp

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ciena Corp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very weak technical and fundamental indicators, Ciena Corp displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Telefonaktiebolaget and Ciena Corp

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

The idea behind Telefonaktiebolaget LM Ericsson and Ciena Corp 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.