Correlation Between SK Telecom and Telefonica

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

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

Diversification Opportunities for SK Telecom and Telefonica

0.2

Correlation Coefficient

SK Telecom  Telefonica

Modest diversification

The 3 months correlation between SKM and Telefonica is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding SK Telecom Co and Telefonica SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefonica SA ADR and SK Telecom 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 SK Telecom Co are associated (or correlated) with Telefonica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telefonica SA ADR has no effect on the direction of SK Telecom i.e., SK Telecom and Telefonica go up and down completely randomly.

Pair Corralation between SK Telecom and Telefonica

Considering the 90-day investment horizon SK Telecom is expected to generate 158.13 times less return on investment than Telefonica. In addition to that, SK Telecom is 1.15 times more volatile than Telefonica SA ADR. It trades about 0.0 of its total potential returns per unit of risk. Telefonica SA ADR is currently generating about 0.23 per unit of volatility. If you would invest  402.00  in Telefonica SA ADR on December 28, 2024 and sell it today you would earn a total of  61.00  from holding Telefonica SA ADR or generate 15.17% return on investment over 90 days.

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

SK Telecom Co  vs.  Telefonica SA ADR

SK Telecom

Risk-Adjusted Performance

Very Weak

Over the last 90 days SK Telecom Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward-looking signals, SK Telecom is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Telefonica SA ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Telefonica SA ADR are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical and fundamental indicators, Telefonica reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SK Telecom and Telefonica

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

The idea behind SK Telecom Co and Telefonica SA ADR 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.