Correlation Between Telephone and Telefonica Brasil

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

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

Diversification Opportunities for Telephone and Telefonica Brasil

0.76

Correlation Coefficient

Telephone  Telefonica Brasil

Poor diversification

The 3 months correlation between Telephone and Telefonica is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Telephone and Data and Telefonica Brasil SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefonica Brasil and Telephone 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 Telephone and Data are associated (or correlated) with Telefonica Brasil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telefonica Brasil has no effect on the direction of Telephone i.e., Telephone and Telefonica Brasil go up and down completely randomly.

Pair Corralation between Telephone and Telefonica Brasil

Considering the 90-day investment horizon Telephone is expected to generate 2.08 times less return on investment than Telefonica Brasil. In addition to that, Telephone is 1.17 times more volatile than Telefonica Brasil SA. It trades about 0.05 of its total potential returns per unit of risk. Telefonica Brasil SA is currently generating about 0.12 per unit of volatility. If you would invest  765.00  in Telefonica Brasil SA on December 22, 2024 and sell it today you would earn a total of  106.00  from holding Telefonica Brasil SA or generate 13.86% return on investment over 90 days.

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

Telephone and Data  vs.  Telefonica Brasil SA

Telephone and Data

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Telephone and Data are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal fundamental indicators, Telephone may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Telefonica Brasil

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Telefonica Brasil SA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating forward indicators, Telefonica Brasil showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Telephone and Telefonica Brasil

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

The idea behind Telephone and Data and Telefonica Brasil 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.

Check out your portfolio center.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.