Correlation Between Telecom Italia and Aeorema Communications
Can any of the company-specific risk be diversified away by investing in both Telecom Italia and Aeorema Communications 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 Telecom Italia and Aeorema Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Telecom Italia SpA and Aeorema Communications Plc, you can compare the effects of market volatilities on Telecom Italia and Aeorema Communications 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 Telecom Italia with a short position of Aeorema Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Telecom Italia and Aeorema Communications.
Diversification Opportunities for Telecom Italia and Aeorema Communications
-0.36 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Telecom and Aeorema is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Telecom Italia SpA and Aeorema Communications Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aeorema Communications and Telecom Italia 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 Telecom Italia SpA are associated (or correlated) with Aeorema Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aeorema Communications has no effect on the direction of Telecom Italia i.e., Telecom Italia and Aeorema Communications go up and down completely randomly.
Pair Corralation between Telecom Italia and Aeorema Communications
Assuming the 90 days trading horizon Telecom Italia is expected to generate 16.17 times less return on investment than Aeorema Communications. In addition to that, Telecom Italia is 1.47 times more volatile than Aeorema Communications Plc. It trades about 0.01 of its total potential returns per unit of risk. Aeorema Communications Plc is currently generating about 0.26 per unit of volatility. If you would invest 5,000 in Aeorema Communications Plc on August 30, 2024 and sell it today you would earn a total of 450.00 from holding Aeorema Communications Plc or generate 9.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Telecom Italia SpA vs. Aeorema Communications Plc
Performance |
| Timeline |
| Telecom Italia SpA |
| Aeorema Communications |
Telecom Italia and Aeorema Communications Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Telecom Italia and Aeorema Communications
The main advantage of trading using opposite Telecom Italia and Aeorema Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Telecom Italia position performs unexpectedly, Aeorema Communications 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 Aeorema Communications will offset losses from the drop in Aeorema Communications' long position.| Telecom Italia vs. Tungsten West PLC | Telecom Italia vs. Argo Group Limited | Telecom Italia vs. Hardide PLC | Telecom Italia vs. Versarien PLC |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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