Correlation Between Deutsche Telekom and Telefnica

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

Diversification Opportunities for Deutsche Telekom and Telefnica

0.78

Correlation Coefficient

Deutsche Telekom  Telefnica

Poor diversification

The 3 months correlation between Deutsche and Telefnica is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Deutsche Telekom AG and Telefnica SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefnica SA 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 Telefnica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telefnica SA has no effect on the direction of Deutsche Telekom i.e., Deutsche Telekom and Telefnica go up and down completely randomly.

Pair Corralation between Deutsche Telekom and Telefnica

Assuming the 90 days horizon Deutsche Telekom AG is expected to generate 0.46 times more return on investment than Telefnica. However, Deutsche Telekom AG is 2.15 times less risky than Telefnica. It trades about 0.17 of its potential returns per unit of risk. Telefnica SA is currently generating about 0.05 per unit of risk. If you would invest  2,977  in Deutsche Telekom AG on December 23, 2024 and sell it today you would earn a total of  640.00  from holding Deutsche Telekom AG or generate 21.5% return on investment over 90 days.

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

Deutsche Telekom AG  vs.  Telefnica SA

Deutsche Telekom

Risk-Adjusted Performance

Good

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

Telefnica SA

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Telefnica SA are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Telefnica reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Deutsche Telekom and Telefnica

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

The idea behind Deutsche Telekom AG and Telefnica SA 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.