Correlation Between Ross Stores and Telefnica

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

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

Diversification Opportunities for Ross Stores and Telefnica

0.38

Correlation Coefficient

Ross Stores  Telefnica

Weak diversification

The 3 months correlation between Ross and Telefnica is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Ross Stores and Telefnica SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefnica SA and Ross Stores 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 Ross Stores 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 Ross Stores i.e., Ross Stores and Telefnica go up and down completely randomly.

Pair Corralation between Ross Stores and Telefnica

Assuming the 90 days trading horizon Ross Stores is expected to generate 1.09 times less return on investment than Telefnica. But when comparing it to its historical volatility, Ross Stores is 1.22 times less risky than Telefnica. It trades about 0.08 of its potential returns per unit of risk. Telefnica SA is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,298  in Telefnica SA on September 16, 2024 and sell it today you would earn a total of  327.00  from holding Telefnica SA or generate 14.23% return on investment over 90 days.

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

Ross Stores  vs.  Telefnica SA

Ross Stores

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ross Stores are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ross Stores may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 somewhat strong basic indicators, Telefnica is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ross Stores and Telefnica

The main advantage of trading using opposite Ross Stores and Telefnica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ross Stores 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 Ross Stores 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.