Correlation Between Magyar Telekom and Telefonica Brasil

Can any of the company-specific risk be diversified away by investing in both Magyar Telekom and Telefonica Brasil 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 Brasil 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 Brasil SA, you can compare the effects of market volatilities on Magyar Telekom and Telefonica Brasil 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 Brasil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Magyar Telekom and Telefonica Brasil.

Diversification Opportunities for Magyar Telekom and Telefonica Brasil

-0.77

Correlation Coefficient

Magyar Telekom  Telefonica Brasil

Pay attention - limited upside

The 3 months correlation between Magyar and Telefonica is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Magyar Telekom Plc and Telefonica Brasil SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefonica Brasil 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 Brasil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telefonica Brasil has no effect on the direction of Magyar Telekom i.e., Magyar Telekom and Telefonica Brasil go up and down completely randomly.

Pair Corralation between Magyar Telekom and Telefonica Brasil

Assuming the 90 days horizon Magyar Telekom Plc is expected to generate 1.32 times more return on investment than Telefonica Brasil. However, Magyar Telekom is 1.32 times more volatile than Telefonica Brasil SA. It trades about 0.1 of its potential returns per unit of risk. Telefonica Brasil SA is currently generating about -0.07 per unit of risk. If you would invest  1,039  in Magyar Telekom Plc on October 2, 2024 and sell it today you would earn a total of  634.00  from holding Magyar Telekom Plc or generate 61.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.56%
Values	Daily Returns

Magyar Telekom Plc  vs.  Telefonica Brasil SA

Magyar Telekom Plc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Magyar Telekom Plc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Magyar Telekom showed solid returns over the last few months and may actually be approaching a breakup point.

Telefonica Brasil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Telefonica Brasil SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's forward indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Magyar Telekom and Telefonica Brasil

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

The idea behind Magyar Telekom Plc and Telefonica Brasil 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.

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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.