Correlation Between Mitsubishi UFJ and Telefnica

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

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

Diversification Opportunities for Mitsubishi UFJ and Telefnica

0.08

Correlation Coefficient

Mitsubishi UFJ  Telefnica

Significant diversification

The 3 months correlation between Mitsubishi and Telefnica is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Mitsubishi UFJ Financial and Telefnica SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefnica SA and Mitsubishi UFJ 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 Mitsubishi UFJ Financial are associated (or correlated) with Telefnica. 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 Mitsubishi UFJ i.e., Mitsubishi UFJ and Telefnica go up and down completely randomly.

Pair Corralation between Mitsubishi UFJ and Telefnica

Assuming the 90 days trading horizon Mitsubishi UFJ Financial is expected to generate 0.9 times more return on investment than Telefnica. However, Mitsubishi UFJ Financial is 1.11 times less risky than Telefnica. It trades about 0.25 of its potential returns per unit of risk. Telefnica SA is currently generating about 0.0 per unit of risk. If you would invest  5,515  in Mitsubishi UFJ Financial on September 17, 2024 and sell it today you would earn a total of  1,695  from holding Mitsubishi UFJ Financial or generate 30.73% return on investment over 90 days.

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

Mitsubishi UFJ Financial  vs.  Telefnica SA

Mitsubishi UFJ Financial

Risk-Adjusted Performance

19 of 100

Solid

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

Telefnica SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Telefnica SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Telefnica is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Mitsubishi UFJ and Telefnica

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

The idea behind Mitsubishi UFJ Financial 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.