Correlation Between Telefonica and Industria

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

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

Diversification Opportunities for Telefonica and Industria

0.79

Correlation Coefficient

Telefonica  Industria

Poor diversification

The 3 months correlation between Telefonica and Industria is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Telefonica and Industria de Diseno in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industria de Diseno and Telefonica 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 Telefonica are associated (or correlated) with Industria. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industria de Diseno has no effect on the direction of Telefonica i.e., Telefonica and Industria go up and down completely randomly.

Pair Corralation between Telefonica and Industria

Assuming the 90 days trading horizon Telefonica is expected to generate 2.53 times less return on investment than Industria. But when comparing it to its historical volatility, Telefonica is 1.19 times less risky than Industria. It trades about 0.05 of its potential returns per unit of risk. Industria de Diseno is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,716  in Industria de Diseno on October 23, 2024 and sell it today you would earn a total of  2,179  from holding Industria de Diseno or generate 80.23% return on investment over 90 days.

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

Telefonica  vs.  Industria de Diseno

Telefonica

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Telefonica has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Industria de Diseno

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Industria de Diseno has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Telefonica and Industria

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

The idea behind Telefonica and Industria de Diseno 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.