Correlation Between Aeorema Communications and Telecom Italia
Can any of the company-specific risk be diversified away by investing in both Aeorema Communications and Telecom Italia 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 Aeorema Communications and Telecom Italia into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Aeorema Communications Plc and Telecom Italia SpA, you can compare the effects of market volatilities on Aeorema Communications and Telecom Italia 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 Aeorema Communications with a short position of Telecom Italia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aeorema Communications and Telecom Italia.
Diversification Opportunities for Aeorema Communications and Telecom Italia
-0.36 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Aeorema and Telecom is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Aeorema Communications Plc and Telecom Italia SpA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telecom Italia SpA and Aeorema Communications 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 Aeorema Communications Plc are associated (or correlated) with Telecom Italia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telecom Italia SpA has no effect on the direction of Aeorema Communications i.e., Aeorema Communications and Telecom Italia go up and down completely randomly.
Pair Corralation between Aeorema Communications and Telecom Italia
Assuming the 90 days trading horizon Aeorema Communications Plc is expected to generate 0.68 times more return on investment than Telecom Italia. However, Aeorema Communications Plc is 1.47 times less risky than Telecom Italia. It trades about 0.26 of its potential returns per unit of risk. Telecom Italia SpA is currently generating about 0.01 per unit of risk. 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 |
Aeorema Communications Plc vs. Telecom Italia SpA
Performance |
| Timeline |
| Aeorema Communications |
| Telecom Italia SpA |
Aeorema Communications and Telecom Italia Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Aeorema Communications and Telecom Italia
The main advantage of trading using opposite Aeorema Communications and Telecom Italia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aeorema Communications position performs unexpectedly, Telecom Italia 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 Telecom Italia will offset losses from the drop in Telecom Italia's long position.The idea behind Aeorema Communications Plc and Telecom Italia SpA 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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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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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