Correlation Between Ecofin Global and Telecom Italia

Can any of the company-specific risk be diversified away by investing in both Ecofin Global and Telecom Italia 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 Ecofin Global and Telecom Italia into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ecofin Global Utilities and Telecom Italia SpA, you can compare the effects of market volatilities on Ecofin Global and Telecom Italia 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 Ecofin Global with a short position of Telecom Italia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ecofin Global and Telecom Italia.

Diversification Opportunities for Ecofin Global and Telecom Italia

0.6

Correlation Coefficient

Ecofin Global  Telecom Italia

Poor diversification

The 3 months correlation between Ecofin and Telecom is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Ecofin Global Utilities and Telecom Italia SpA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telecom Italia SpA and Ecofin Global 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 Ecofin Global Utilities are associated (or correlated) with Telecom Italia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telecom Italia SpA has no effect on the direction of Ecofin Global i.e., Ecofin Global and Telecom Italia go up and down completely randomly.

Pair Corralation between Ecofin Global and Telecom Italia

Assuming the 90 days trading horizon Ecofin Global is expected to generate 2.19 times less return on investment than Telecom Italia. But when comparing it to its historical volatility, Ecofin Global Utilities is 1.93 times less risky than Telecom Italia. It trades about 0.11 of its potential returns per unit of risk. Telecom Italia SpA is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  28.00  in Telecom Italia SpA on December 23, 2024 and sell it today you would earn a total of  5.00  from holding Telecom Italia SpA or generate 17.86% return on investment over 90 days.

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

Ecofin Global Utilities  vs.  Telecom Italia SpA

Ecofin Global Utilities

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ecofin Global Utilities are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Ecofin Global may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Telecom Italia SpA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Telecom Italia SpA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Telecom Italia unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ecofin Global and Telecom Italia

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

The idea behind Ecofin Global Utilities and Telecom Italia SpA 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 CEOs Directory module to screen CEOs from public companies around the world.