Correlation Between Telecom Italia and SBM Offshore

Can any of the company-specific risk be diversified away by investing in both Telecom Italia and SBM Offshore 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 Telecom Italia and SBM Offshore into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Telecom Italia SpA and SBM Offshore NV, you can compare the effects of market volatilities on Telecom Italia and SBM Offshore 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 Telecom Italia with a short position of SBM Offshore. Check out your portfolio center. Please also check ongoing floating volatility patterns of Telecom Italia and SBM Offshore.

Diversification Opportunities for Telecom Italia and SBM Offshore

-0.41

Correlation Coefficient

Telecom Italia  SBM Offshore

Very good diversification

The 3 months correlation between Telecom and SBM is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Telecom Italia SpA and SBM Offshore NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SBM Offshore NV and Telecom Italia 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 Telecom Italia SpA are associated (or correlated) with SBM Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SBM Offshore NV has no effect on the direction of Telecom Italia i.e., Telecom Italia and SBM Offshore go up and down completely randomly.

Pair Corralation between Telecom Italia and SBM Offshore

Assuming the 90 days trading horizon Telecom Italia SpA is expected to generate 1.75 times more return on investment than SBM Offshore. However, Telecom Italia is 1.75 times more volatile than SBM Offshore NV. It trades about 0.03 of its potential returns per unit of risk. SBM Offshore NV is currently generating about 0.04 per unit of risk. If you would invest  24.00  in Telecom Italia SpA on October 4, 2024 and sell it today you would earn a total of  5.00  from holding Telecom Italia SpA or generate 20.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Telecom Italia SpA  vs.  SBM Offshore NV

Telecom Italia SpA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Telecom Italia SpA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Telecom Italia is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

SBM Offshore NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SBM Offshore NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, SBM Offshore is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Telecom Italia and SBM Offshore

The main advantage of trading using opposite Telecom Italia and SBM Offshore positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Telecom Italia position performs unexpectedly, SBM Offshore 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 SBM Offshore will offset losses from the drop in SBM Offshore's long position.

The idea behind Telecom Italia SpA and SBM Offshore NV 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.