Correlation Between IPC MEXICO and Telefnica

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

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

Diversification Opportunities for IPC MEXICO and Telefnica

-0.75

Correlation Coefficient

IPC MEXICO  Telefnica

Pay attention - limited upside

The 3 months correlation between IPC and Telefnica is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding IPC MEXICO and Telefnica SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefnica SA and IPC MEXICO 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 IPC MEXICO 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 IPC MEXICO i.e., IPC MEXICO and Telefnica go up and down completely randomly.

Pair Corralation between IPC MEXICO and Telefnica

Assuming the 90 days trading horizon IPC MEXICO is expected to under-perform the Telefnica. In addition to that, IPC MEXICO is 1.1 times more volatile than Telefnica SA. It trades about -0.03 of its total potential returns per unit of risk. Telefnica SA is currently generating about 0.23 per unit of volatility. If you would invest  8,537  in Telefnica SA on September 25, 2024 and sell it today you would earn a total of  323.00  from holding Telefnica SA or generate 3.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

IPC MEXICO  vs.  Telefnica SA

Pair Trading with IPC MEXICO and Telefnica

The main advantage of trading using opposite IPC MEXICO and Telefnica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IPC MEXICO 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 IPC MEXICO 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.