Correlation Between Liberty Latin and Telefonica

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

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

Diversification Opportunities for Liberty Latin and Telefonica

0.83

Correlation Coefficient

Liberty Latin  Telefonica

Very poor diversification

The 3 months correlation between Liberty and Telefonica is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Liberty Latin America 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 Latin 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 Latin America 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 Latin i.e., Liberty Latin and Telefonica go up and down completely randomly.

Pair Corralation between Liberty Latin and Telefonica

Assuming the 90 days horizon Liberty Latin America is expected to under-perform the Telefonica. In addition to that, Liberty Latin is 2.8 times more volatile than Telefonica SA ADR. It trades about -0.11 of its total potential returns per unit of risk. Telefonica SA ADR is currently generating about 0.0 per unit of volatility. If you would invest  406.00  in Telefonica SA ADR on September 26, 2024 and sell it today you would lose (2.00) from holding Telefonica SA ADR or give up 0.49% of portfolio value over 90 days.

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

Liberty Latin America  vs.  Telefonica SA ADR

Liberty Latin America

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Liberty Latin America has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Telefonica SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Telefonica SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Liberty Latin and Telefonica

The main advantage of trading using opposite Liberty Latin and Telefonica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Liberty Latin 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 Latin America 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.

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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 Transaction History module to view history of all your transactions and understand their impact on performance.