Correlation Between Orange SA and Vodafone Group

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

By analyzing existing cross correlation between Orange SA and Vodafone Group PLC, you can compare the effects of market volatilities on Orange SA and Vodafone Group 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 Vodafone Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Orange SA and Vodafone Group.

Diversification Opportunities for Orange SA and Vodafone Group

0.3

Correlation Coefficient

Orange SA  Vodafone Group

Weak diversification

The 3 months correlation between Orange and Vodafone is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Orange SA and Vodafone Group PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vodafone Group PLC 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 Vodafone Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vodafone Group PLC has no effect on the direction of Orange SA i.e., Orange SA and Vodafone Group go up and down completely randomly.

Pair Corralation between Orange SA and Vodafone Group

Assuming the 90 days horizon Orange SA is expected to generate 1.7 times more return on investment than Vodafone Group. However, Orange SA is 1.7 times more volatile than Vodafone Group PLC. It trades about 0.05 of its potential returns per unit of risk. Vodafone Group PLC is currently generating about -0.08 per unit of risk. If you would invest  1,040  in Orange SA on October 24, 2024 and sell it today you would earn a total of  59.00  from holding Orange SA or generate 5.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.31%
Values	Daily Returns

Orange SA  vs.  Vodafone Group PLC

Orange SA

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Orange SA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Orange SA may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Vodafone Group PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vodafone Group PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Orange SA and Vodafone Group

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

The idea behind Orange SA and Vodafone Group PLC 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.