Correlation Between Magyar Telekom and Telefonica

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

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

Diversification Opportunities for Magyar Telekom and Telefonica

-0.71

Correlation Coefficient

Magyar Telekom  Telefonica

Pay attention - limited upside

The 3 months correlation between Magyar and Telefonica is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Magyar Telekom 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 Magyar Telekom 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 Magyar Telekom 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 Magyar Telekom i.e., Magyar Telekom and Telefonica go up and down completely randomly.

Pair Corralation between Magyar Telekom and Telefonica

Assuming the 90 days horizon Magyar Telekom Plc is expected to generate 3.44 times more return on investment than Telefonica. However, Magyar Telekom is 3.44 times more volatile than Telefonica SA ADR. It trades about 0.01 of its potential returns per unit of risk. Telefonica SA ADR is currently generating about -0.41 per unit of risk. If you would invest  1,574  in Magyar Telekom Plc on September 28, 2024 and sell it today you would lose (10.00) from holding Magyar Telekom Plc or give up 0.64% of portfolio value over 90 days.

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

Magyar Telekom Plc  vs.  Telefonica SA ADR

Magyar Telekom Plc

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Magyar Telekom Plc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Magyar Telekom may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 Magyar Telekom and Telefonica

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

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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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.