Correlation Between Deutsche Telekom and GMO Internet

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

By analyzing existing cross correlation between Deutsche Telekom AG and GMO Internet, you can compare the effects of market volatilities on Deutsche Telekom and GMO Internet 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 Deutsche Telekom with a short position of GMO Internet. Check out your portfolio center. Please also check ongoing floating volatility patterns of Deutsche Telekom and GMO Internet.

Diversification Opportunities for Deutsche Telekom and GMO Internet

0.57

Correlation Coefficient

Deutsche Telekom  GMO Internet

Very weak diversification

The 3 months correlation between Deutsche and GMO is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Deutsche Telekom AG and GMO Internet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GMO Internet and Deutsche Telekom 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 Deutsche Telekom AG are associated (or correlated) with GMO Internet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GMO Internet has no effect on the direction of Deutsche Telekom i.e., Deutsche Telekom and GMO Internet go up and down completely randomly.

Pair Corralation between Deutsche Telekom and GMO Internet

Assuming the 90 days horizon Deutsche Telekom AG is expected to under-perform the GMO Internet. But the stock apears to be less risky and, when comparing its historical volatility, Deutsche Telekom AG is 2.0 times less risky than GMO Internet. The stock trades about -0.19 of its potential returns per unit of risk. The GMO Internet is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,590  in GMO Internet on September 28, 2024 and sell it today you would earn a total of  10.00  from holding GMO Internet or generate 0.63% return on investment over 90 days.

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

Deutsche Telekom AG  vs.  GMO Internet

Deutsche Telekom

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Deutsche Telekom AG are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Deutsche Telekom may actually be approaching a critical reversion point that can send shares even higher in January 2025.

GMO Internet

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in GMO Internet are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, GMO Internet is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Deutsche Telekom and GMO Internet

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

The idea behind Deutsche Telekom AG and GMO Internet 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.