Correlation Between Retail Estates and Deutsche Telekom

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

By analyzing existing cross correlation between Retail Estates NV and Deutsche Telekom AG, you can compare the effects of market volatilities on Retail Estates and Deutsche Telekom 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 Retail Estates with a short position of Deutsche Telekom. Check out your portfolio center. Please also check ongoing floating volatility patterns of Retail Estates and Deutsche Telekom.

Diversification Opportunities for Retail Estates and Deutsche Telekom

0.29

Correlation Coefficient

Retail Estates  Deutsche Telekom

Modest diversification

The 3 months correlation between Retail and Deutsche is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Retail Estates NV and Deutsche Telekom AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deutsche Telekom and Retail Estates 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 Retail Estates NV are associated (or correlated) with Deutsche Telekom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deutsche Telekom has no effect on the direction of Retail Estates i.e., Retail Estates and Deutsche Telekom go up and down completely randomly.

Pair Corralation between Retail Estates and Deutsche Telekom

Assuming the 90 days horizon Retail Estates is expected to generate 4.32 times less return on investment than Deutsche Telekom. But when comparing it to its historical volatility, Retail Estates NV is 1.27 times less risky than Deutsche Telekom. It trades about 0.06 of its potential returns per unit of risk. Deutsche Telekom AG is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  2,890  in Deutsche Telekom AG on December 21, 2024 and sell it today you would earn a total of  492.00  from holding Deutsche Telekom AG or generate 17.02% return on investment over 90 days.

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

Retail Estates NV  vs.  Deutsche Telekom AG

Retail Estates NV

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Retail Estates NV are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Retail Estates is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Deutsche Telekom

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Deutsche Telekom AG are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Deutsche Telekom reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Retail Estates and Deutsche Telekom

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

The idea behind Retail Estates NV and Deutsche Telekom AG 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.