Correlation Between Deutsche Telekom and Telkom SA

Can any of the company-specific risk be diversified away by investing in both Deutsche Telekom and Telkom SA 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 Telkom SA 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 Telkom SA SOC, you can compare the effects of market volatilities on Deutsche Telekom and Telkom SA 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 Telkom SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Deutsche Telekom and Telkom SA.

Diversification Opportunities for Deutsche Telekom and Telkom SA

0.84

Correlation Coefficient

Deutsche Telekom  Telkom SA

Very poor diversification

The 3 months correlation between Deutsche and Telkom is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Deutsche Telekom AG and Telkom SA SOC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telkom SA SOC 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 Telkom SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telkom SA SOC has no effect on the direction of Deutsche Telekom i.e., Deutsche Telekom and Telkom SA go up and down completely randomly.

Pair Corralation between Deutsche Telekom and Telkom SA

Assuming the 90 days horizon Deutsche Telekom AG is expected to generate 0.29 times more return on investment than Telkom SA. However, Deutsche Telekom AG is 3.44 times less risky than Telkom SA. It trades about -0.24 of its potential returns per unit of risk. Telkom SA SOC is currently generating about -0.22 per unit of risk. If you would invest  2,977  in Deutsche Telekom AG on October 9, 2024 and sell it today you would lose (95.00) from holding Deutsche Telekom AG or give up 3.19% of portfolio value over 90 days.

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

Deutsche Telekom AG  vs.  Telkom SA SOC

Deutsche Telekom

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Deutsche Telekom AG are ranked lower than 9 (%) 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 February 2025.

Telkom SA SOC

Risk-Adjusted Performance

13 of 100

Good

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

Pair Trading with Deutsche Telekom and Telkom SA

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

The idea behind Deutsche Telekom AG and Telkom SA SOC 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.