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

0.73

Correlation Coefficient

Deutsche Telekom  Telefnica

Poor diversification

The 3 months correlation between Deutsche and Telefnica is 0.73. 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 is expected to generate 3.0 times less return on investment than Telefnica. But when comparing it to its historical volatility, Deutsche Telekom AG is 5.17 times less risky than Telefnica. It trades about 0.07 of its potential returns per unit of risk. Telefnica SA is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  293.00  in Telefnica SA on October 9, 2024 and sell it today you would earn a total of  117.00  from holding Telefnica SA or generate 39.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	31.86%
Values	Daily Returns

Deutsche Telekom AG  vs.  Telefnica SA

Deutsche Telekom

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Deutsche Telekom AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Deutsche Telekom is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Telefnica SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Telefnica SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.