Correlation Between Southern Copper and Telefnica

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

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

Diversification Opportunities for Southern Copper and Telefnica

-0.31

Correlation Coefficient

Southern Copper  Telefnica

Very good diversification

The 3 months correlation between Southern and Telefnica is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Southern Copper and Telefnica SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefnica SA and Southern Copper 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 Southern Copper 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 Southern Copper i.e., Southern Copper and Telefnica go up and down completely randomly.

Pair Corralation between Southern Copper and Telefnica

Assuming the 90 days trading horizon Southern Copper is expected to generate 1.13 times less return on investment than Telefnica. In addition to that, Southern Copper is 2.18 times more volatile than Telefnica SA. It trades about 0.07 of its total potential returns per unit of risk. Telefnica SA is currently generating about 0.18 per unit of volatility. If you would invest  8,056  in Telefnica SA on September 25, 2024 and sell it today you would earn a total of  804.00  from holding Telefnica SA or generate 9.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Southern Copper  vs.  Telefnica SA

Southern Copper

Risk-Adjusted Performance

5 of 100

Modest

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

Telefnica SA

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Telefnica SA are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Telefnica may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Southern Copper and Telefnica

The main advantage of trading using opposite Southern Copper and Telefnica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southern Copper 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 Southern Copper 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.