Correlation Between Cogent Communications and Telecom Italia

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

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

Diversification Opportunities for Cogent Communications and Telecom Italia

0.15

Correlation Coefficient

Cogent Communications  Telecom Italia

Average diversification

The 3 months correlation between Cogent and Telecom is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Cogent Communications Group and Telecom Italia SpA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telecom Italia SpA and Cogent Communications 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 Cogent Communications Group are associated (or correlated) with Telecom Italia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telecom Italia SpA has no effect on the direction of Cogent Communications i.e., Cogent Communications and Telecom Italia go up and down completely randomly.

Pair Corralation between Cogent Communications and Telecom Italia

Given the investment horizon of 90 days Cogent Communications Group is expected to under-perform the Telecom Italia. In addition to that, Cogent Communications is 1.06 times more volatile than Telecom Italia SpA. It trades about -0.06 of its total potential returns per unit of risk. Telecom Italia SpA is currently generating about 0.13 per unit of volatility. If you would invest  28.00  in Telecom Italia SpA on December 20, 2024 and sell it today you would earn a total of  4.00  from holding Telecom Italia SpA or generate 14.29% return on investment over 90 days.

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

Cogent Communications Group  vs.  Telecom Italia SpA

Cogent Communications

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cogent Communications Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

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 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak forward-looking indicators, Telecom Italia reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cogent Communications and Telecom Italia

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

The idea behind Cogent Communications Group and Telecom Italia SpA 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.