Correlation Between Basic Materials and Telefnica
Can any of the company-specific risk be diversified away by investing in both Basic Materials and Telefnica 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 Basic Materials and Telefnica into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Basic Materials and Telefnica SA, you can compare the effects of market volatilities on Basic Materials and Telefnica 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 Basic Materials with a short position of Telefnica. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Materials and Telefnica.
Diversification Opportunities for Basic Materials and Telefnica
0.59 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Basic and Telefnica is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials and Telefnica SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefnica SA and Basic Materials 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 Basic Materials are associated (or correlated) with Telefnica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telefnica SA has no effect on the direction of Basic Materials i.e., Basic Materials and Telefnica go up and down completely randomly.
Pair Corralation between Basic Materials and Telefnica
Assuming the 90 days trading horizon Basic Materials is expected to generate 12.78 times less return on investment than Telefnica. But when comparing it to its historical volatility, Basic Materials is 1.41 times less risky than Telefnica. It trades about 0.02 of its potential returns per unit of risk. Telefnica SA is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 2,330 in Telefnica SA on December 11, 2024 and sell it today you would earn a total of 331.00 from holding Telefnica SA or generate 14.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Basic Materials vs. Telefnica SA
Performance |
| Timeline |
Basic Materials and Telefnica Volatility Contrast
Predicted Return Density |
| Returns |
Basic Materials
Pair trading matchups for Basic Materials
Telefnica SA
Pair trading matchups for Telefnica
Pair Trading with Basic Materials and Telefnica
The main advantage of trading using opposite Basic Materials and Telefnica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Basic Materials position performs unexpectedly, Telefnica 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 Telefnica will offset losses from the drop in Telefnica's long position.| Basic Materials vs. SVB Financial Group | ||
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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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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