Correlation Between Telefnica and Telecomunicaes Brasileiras
Can any of the company-specific risk be diversified away by investing in both Telefnica and Telecomunicaes Brasileiras 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 Telefnica and Telecomunicaes Brasileiras into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Telefnica SA and Telecomunicaes Brasileiras SA, you can compare the effects of market volatilities on Telefnica and Telecomunicaes Brasileiras 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 Telefnica with a short position of Telecomunicaes Brasileiras. Check out your portfolio center. Please also check ongoing floating volatility patterns of Telefnica and Telecomunicaes Brasileiras.
Diversification Opportunities for Telefnica and Telecomunicaes Brasileiras
0.57 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Telefnica and Telecomunicaes is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Telefnica SA and Telecomunicaes Brasileiras SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telecomunicaes Brasileiras and Telefnica 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 Telefnica SA are associated (or correlated) with Telecomunicaes Brasileiras. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telecomunicaes Brasileiras has no effect on the direction of Telefnica i.e., Telefnica and Telecomunicaes Brasileiras go up and down completely randomly.
Pair Corralation between Telefnica and Telecomunicaes Brasileiras
Assuming the 90 days trading horizon Telefnica SA is expected to generate 0.68 times more return on investment than Telecomunicaes Brasileiras. However, Telefnica SA is 1.47 times less risky than Telecomunicaes Brasileiras. It trades about -0.09 of its potential returns per unit of risk. Telecomunicaes Brasileiras SA is currently generating about -0.2 per unit of risk. If you would invest 2,664 in Telefnica SA on August 28, 2024 and sell it today you would lose (86.00) from holding Telefnica SA or give up 3.23% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Telefnica SA vs. Telecomunicaes Brasileiras SA
Performance |
| Timeline |
| Telefnica SA |
| Telecomunicaes Brasileiras |
Telefnica and Telecomunicaes Brasileiras Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Telefnica and Telecomunicaes Brasileiras
The main advantage of trading using opposite Telefnica and Telecomunicaes Brasileiras positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Telefnica position performs unexpectedly, Telecomunicaes Brasileiras 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 Telecomunicaes Brasileiras will offset losses from the drop in Telecomunicaes Brasileiras' long position.The idea behind Telefnica SA and Telecomunicaes Brasileiras SA 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.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 Global Correlations module to find global opportunities by holding instruments from different markets.
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