Correlation Between Orange SA and Telefónica

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

By analyzing existing cross correlation between Orange SA and Telefnica SA, you can compare the effects of market volatilities on Orange SA and Telefónica 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 Orange SA with a short position of Telefónica. Check out your portfolio center. Please also check ongoing floating volatility patterns of Orange SA and Telefónica.

Diversification Opportunities for Orange SA and Telefónica

0.56

Correlation Coefficient

Orange SA  Telefónica

Very weak diversification

The 3 months correlation between Orange and Telefónica is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Orange SA and Telefnica SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefnica SA and Orange SA 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 Orange SA are associated (or correlated) with Telefónica. 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 Orange SA i.e., Orange SA and Telefónica go up and down completely randomly.

Pair Corralation between Orange SA and Telefónica

Assuming the 90 days horizon Orange SA is expected to generate 0.55 times more return on investment than Telefónica. However, Orange SA is 1.82 times less risky than Telefónica. It trades about 0.25 of its potential returns per unit of risk. Telefnica SA is currently generating about 0.05 per unit of risk. If you would invest  955.00  in Orange SA on December 22, 2024 and sell it today you would earn a total of  334.00  from holding Orange SA or generate 34.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	90.16%
Values	Daily Returns

Orange SA  vs.  Telefnica SA

Orange SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Orange SA are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Orange SA 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, Telefónica reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Orange SA and Telefónica

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

The idea behind Orange SA 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.