Correlation Between Telecom Italia and Veolia Environnement

Can any of the company-specific risk be diversified away by investing in both Telecom Italia and Veolia Environnement 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 Veolia Environnement 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 Veolia Environnement VE, you can compare the effects of market volatilities on Telecom Italia and Veolia Environnement 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 Veolia Environnement. Check out your portfolio center. Please also check ongoing floating volatility patterns of Telecom Italia and Veolia Environnement.

Diversification Opportunities for Telecom Italia and Veolia Environnement

0.12

Correlation Coefficient

Telecom Italia  Veolia Environnement

Average diversification

The 3 months correlation between Telecom and Veolia is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Telecom Italia SpA and Veolia Environnement VE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Veolia Environnement 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 Veolia Environnement. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Veolia Environnement has no effect on the direction of Telecom Italia i.e., Telecom Italia and Veolia Environnement go up and down completely randomly.

Pair Corralation between Telecom Italia and Veolia Environnement

Assuming the 90 days trading horizon Telecom Italia is expected to generate 10.15 times less return on investment than Veolia Environnement. In addition to that, Telecom Italia is 2.2 times more volatile than Veolia Environnement VE. It trades about 0.01 of its total potential returns per unit of risk. Veolia Environnement VE is currently generating about 0.27 per unit of volatility. If you would invest  2,734  in Veolia Environnement VE on December 4, 2024 and sell it today you would earn a total of  185.00  from holding Veolia Environnement VE or generate 6.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Telecom Italia SpA  vs.  Veolia Environnement VE

Telecom Italia SpA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Telecom Italia SpA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Telecom Italia unveiled solid returns over the last few months and may actually be approaching a breakup point.

Veolia Environnement

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Veolia Environnement VE are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Veolia Environnement may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Telecom Italia and Veolia Environnement

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

The idea behind Telecom Italia SpA and Veolia Environnement VE 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.

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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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.