Correlation Between Orange SA and Telefnica

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

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

Diversification Opportunities for Orange SA and Telefnica

0.69

Correlation Coefficient

Orange SA  Telefnica

Poor diversification

The 3 months correlation between Orange and Telefnica is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Orange SA ADR and Telefnica SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefnica SA and Orange SA 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 Orange SA ADR 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 Orange SA i.e., Orange SA and Telefnica go up and down completely randomly.

Pair Corralation between Orange SA and Telefnica

Given the investment horizon of 90 days Orange SA ADR is expected to generate 7.17 times more return on investment than Telefnica. However, Orange SA is 7.17 times more volatile than Telefnica SA. It trades about 0.05 of its potential returns per unit of risk. Telefnica SA is currently generating about 0.04 per unit of risk. If you would invest  870.00  in Orange SA ADR on October 9, 2024 and sell it today you would earn a total of  1,319,130  from holding Orange SA ADR or generate 151624.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	90.04%
Values	Daily Returns

Orange SA ADR  vs.  Telefnica SA

Orange SA ADR

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Orange SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very abnormal basic indicators, Orange SA displayed 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 fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Orange SA and Telefnica

The main advantage of trading using opposite Orange SA and Telefnica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Orange SA 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 Orange SA ADR 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 Global Correlations module to find global opportunities by holding instruments from different markets.