Correlation Between Energy Resources and Telstra
Can any of the company-specific risk be diversified away by investing in both Energy Resources and Telstra 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 Energy Resources and Telstra into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Energy Resources and Telstra, you can compare the effects of market volatilities on Energy Resources and Telstra 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 Energy Resources with a short position of Telstra. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Resources and Telstra.
Diversification Opportunities for Energy Resources and Telstra
0.22 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Energy and Telstra is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Energy Resources and Telstra in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telstra and Energy Resources 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 Energy Resources are associated (or correlated) with Telstra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telstra has no effect on the direction of Energy Resources i.e., Energy Resources and Telstra go up and down completely randomly.
Pair Corralation between Energy Resources and Telstra
Assuming the 90 days trading horizon Energy Resources is expected to generate 16.43 times more return on investment than Telstra. However, Energy Resources is 16.43 times more volatile than Telstra. It trades about 0.02 of its potential returns per unit of risk. Telstra is currently generating about 0.02 per unit of risk. If you would invest 6.29 in Energy Resources on October 31, 2024 and sell it today you would lose (5.99) from holding Energy Resources or give up 95.23% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Energy Resources vs. Telstra
Performance |
| Timeline |
| Energy Resources |
| Telstra |
Energy Resources and Telstra Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Energy Resources and Telstra
The main advantage of trading using opposite Energy Resources and Telstra positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Resources position performs unexpectedly, Telstra 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 Telstra will offset losses from the drop in Telstra's long position.| Energy Resources vs. Land Homes Group | Energy Resources vs. Southern Hemisphere Mining | Energy Resources vs. Lendlease Group | Energy Resources vs. Queste Communications |
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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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