Correlation Between Liberty Global and Telefonica

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

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

Diversification Opportunities for Liberty Global and Telefonica

0.07

Correlation Coefficient

Liberty Global  Telefonica

Significant diversification

The 3 months correlation between Liberty and Telefonica is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Liberty Global PLC and Telefonica SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefonica SA ADR and Liberty 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 Liberty Global PLC are associated (or correlated) with Telefonica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telefonica SA ADR has no effect on the direction of Liberty Global i.e., Liberty Global and Telefonica go up and down completely randomly.

Pair Corralation between Liberty Global and Telefonica

Assuming the 90 days horizon Liberty Global PLC is expected to generate 11.45 times more return on investment than Telefonica. However, Liberty Global is 11.45 times more volatile than Telefonica SA ADR. It trades about 0.04 of its potential returns per unit of risk. Telefonica SA ADR is currently generating about 0.23 per unit of risk. If you would invest  1,253  in Liberty Global PLC on December 30, 2024 and sell it today you would lose (110.00) from holding Liberty Global PLC or give up 8.78% of portfolio value over 90 days.

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

Liberty Global PLC  vs.  Telefonica SA ADR

Liberty Global PLC

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Liberty Global PLC are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Liberty Global sustained solid returns over the last few months and may actually be approaching a breakup point.

Telefonica SA ADR

Risk-Adjusted Performance

Solid

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

Pair Trading with Liberty Global and Telefonica

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

The idea behind Liberty Global PLC and Telefonica SA ADR 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.