Correlation Between Deutsche Telekom and Fortescue Metals

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

Diversification Opportunities for Deutsche Telekom and Fortescue Metals

0.01

Correlation Coefficient

Deutsche Telekom  Fortescue Metals

Significant diversification

The 3 months correlation between Deutsche and Fortescue is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Deutsche Telekom AG and Fortescue Metals Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortescue Metals 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 Fortescue Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortescue Metals has no effect on the direction of Deutsche Telekom i.e., Deutsche Telekom and Fortescue Metals go up and down completely randomly.

Pair Corralation between Deutsche Telekom and Fortescue Metals

Assuming the 90 days trading horizon Deutsche Telekom AG is expected to generate 0.44 times more return on investment than Fortescue Metals. However, Deutsche Telekom AG is 2.26 times less risky than Fortescue Metals. It trades about 0.19 of its potential returns per unit of risk. Fortescue Metals Group is currently generating about -0.07 per unit of risk. If you would invest  2,643  in Deutsche Telekom AG on October 6, 2024 and sell it today you would earn a total of  288.00  from holding Deutsche Telekom AG or generate 10.9% return on investment over 90 days.

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

Deutsche Telekom AG  vs.  Fortescue Metals Group

Deutsche Telekom

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Deutsche Telekom AG are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Deutsche Telekom may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Fortescue Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fortescue Metals Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Deutsche Telekom and Fortescue Metals

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

The idea behind Deutsche Telekom AG and Fortescue Metals Group 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.