Correlation Between IDT and TIM Participacoes

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

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

Diversification Opportunities for IDT and TIM Participacoes

0.61

Correlation Coefficient

IDT  TIM Participacoes

Poor diversification

The 3 months correlation between IDT and TIM is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding IDT Corp. and TIM Participacoes SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TIM Participacoes and IDT 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 IDT Corporation are associated (or correlated) with TIM Participacoes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TIM Participacoes has no effect on the direction of IDT i.e., IDT and TIM Participacoes go up and down completely randomly.

Pair Corralation between IDT and TIM Participacoes

Considering the 90-day investment horizon IDT is expected to generate 3.37 times less return on investment than TIM Participacoes. But when comparing it to its historical volatility, IDT Corporation is 1.07 times less risky than TIM Participacoes. It trades about 0.07 of its potential returns per unit of risk. TIM Participacoes SA is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  1,153  in TIM Participacoes SA on December 26, 2024 and sell it today you would earn a total of  360.00  from holding TIM Participacoes SA or generate 31.22% return on investment over 90 days.

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

IDT Corp.  vs.  TIM Participacoes SA

IDT Corporation

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in IDT Corporation are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent fundamental indicators, IDT may actually be approaching a critical reversion point that can send shares even higher in April 2025.

TIM Participacoes

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in TIM Participacoes SA are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating primary indicators, TIM Participacoes sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IDT and TIM Participacoes

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

The idea behind IDT Corporation and TIM Participacoes 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.