Correlation Between Telecom Italia and TMT Investments

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

Diversification Opportunities for Telecom Italia and TMT Investments

-0.14

Correlation Coefficient

Telecom Italia  TMT Investments

Good diversification

The 3 months correlation between Telecom and TMT is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Telecom Italia SpA and TMT Investments PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TMT Investments PLC 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 TMT Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TMT Investments PLC has no effect on the direction of Telecom Italia i.e., Telecom Italia and TMT Investments go up and down completely randomly.

Pair Corralation between Telecom Italia and TMT Investments

Assuming the 90 days trading horizon Telecom Italia SpA is expected to generate 1.22 times more return on investment than TMT Investments. However, Telecom Italia is 1.22 times more volatile than TMT Investments PLC. It trades about 0.06 of its potential returns per unit of risk. TMT Investments PLC is currently generating about -0.1 per unit of risk. If you would invest  25.00  in Telecom Italia SpA on September 3, 2024 and sell it today you would earn a total of  2.00  from holding Telecom Italia SpA or generate 8.0% return on investment over 90 days.

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

Telecom Italia SpA  vs.  TMT Investments PLC

Telecom Italia SpA

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Telecom Italia SpA are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Telecom Italia may actually be approaching a critical reversion point that can send shares even higher in January 2025.

TMT Investments PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TMT Investments PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Telecom Italia and TMT Investments

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

The idea behind Telecom Italia SpA and TMT Investments PLC 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.