Correlation Between Telefonica and TIM Participacoes
Can any of the company-specific risk be diversified away by investing in both Telefonica and TIM Participacoes 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 Telefonica and TIM Participacoes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Telefonica SA ADR and TIM Participacoes SA, you can compare the effects of market volatilities on Telefonica and TIM Participacoes 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 Telefonica with a short position of TIM Participacoes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Telefonica and TIM Participacoes.
Diversification Opportunities for Telefonica and TIM Participacoes
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Telefonica and TIM is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Telefonica SA ADR and TIM Participacoes SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TIM Participacoes and Telefonica 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 Telefonica SA ADR are associated (or correlated) with TIM Participacoes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TIM Participacoes has no effect on the direction of Telefonica i.e., Telefonica and TIM Participacoes go up and down completely randomly.
Pair Corralation between Telefonica and TIM Participacoes
Considering the 90-day investment horizon Telefonica SA ADR is expected to under-perform the TIM Participacoes. In addition to that, Telefonica is 1.01 times more volatile than TIM Participacoes SA. It trades about -0.08 of its total potential returns per unit of risk. TIM Participacoes SA is currently generating about -0.05 per unit of volatility. If you would invest 1,429 in TIM Participacoes SA on August 30, 2024 and sell it today you would lose (24.00) from holding TIM Participacoes SA or give up 1.68% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Telefonica SA ADR vs. TIM Participacoes SA
Performance |
| Timeline |
| Telefonica SA ADR |
| TIM Participacoes |
Telefonica and TIM Participacoes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Telefonica and TIM Participacoes
The main advantage of trading using opposite Telefonica and TIM Participacoes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Telefonica position performs unexpectedly, TIM Participacoes 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 TIM Participacoes will offset losses from the drop in TIM Participacoes' long position.| Telefonica vs. Orange SA ADR | Telefonica vs. SK Telecom Co | Telefonica vs. America Movil SAB | Telefonica vs. KT Corporation |
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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 Stocks Directory module to find actively traded stocks across global markets.
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