Correlation Between Airtel Africa and Telefonica

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

By analyzing existing cross correlation between Airtel Africa Plc and Telefonica SA ADR, you can compare the effects of market volatilities on Airtel Africa and Telefonica 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 Airtel Africa with a short position of Telefonica. Check out your portfolio center. Please also check ongoing floating volatility patterns of Airtel Africa and Telefonica.

Diversification Opportunities for Airtel Africa and Telefonica

0.66

Correlation Coefficient

Airtel Africa  Telefonica

Poor diversification

The 3 months correlation between Airtel and Telefonica is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Airtel Africa Plc and Telefonica SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefonica SA ADR and Airtel Africa 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 Airtel Africa Plc are associated (or correlated) with Telefonica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telefonica SA ADR has no effect on the direction of Airtel Africa i.e., Airtel Africa and Telefonica go up and down completely randomly.

Pair Corralation between Airtel Africa and Telefonica

Assuming the 90 days horizon Airtel Africa Plc is expected to generate 6.81 times more return on investment than Telefonica. However, Airtel Africa is 6.81 times more volatile than Telefonica SA ADR. It trades about 0.17 of its potential returns per unit of risk. Telefonica SA ADR is currently generating about 0.24 per unit of risk. If you would invest  125.00  in Airtel Africa Plc on December 21, 2024 and sell it today you would earn a total of  90.00  from holding Airtel Africa Plc or generate 72.0% return on investment over 90 days.

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

Airtel Africa Plc  vs.  Telefonica SA ADR

Airtel Africa Plc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Airtel Africa Plc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Airtel Africa reported solid returns over the last few months and may actually be approaching a breakup point.

Telefonica SA ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Telefonica SA ADR are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical and fundamental indicators, Telefonica reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Airtel Africa and Telefonica

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

The idea behind Airtel Africa Plc and Telefonica SA ADR 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.