Correlation Between Telefonica and Repsol

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

By analyzing existing cross correlation between Telefonica and Repsol, you can compare the effects of market volatilities on Telefonica and Repsol 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 Repsol. Check out your portfolio center. Please also check ongoing floating volatility patterns of Telefonica and Repsol.

Diversification Opportunities for Telefonica and Repsol

-0.02

Correlation Coefficient

Telefonica  Repsol

Good diversification

The 3 months correlation between Telefonica and Repsol is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Telefonica and Repsol in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Repsol 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 Repsol. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Repsol has no effect on the direction of Telefonica i.e., Telefonica and Repsol go up and down completely randomly.

Pair Corralation between Telefonica and Repsol

Assuming the 90 days trading horizon Telefonica is expected to under-perform the Repsol. But the stock apears to be less risky and, when comparing its historical volatility, Telefonica is 1.21 times less risky than Repsol. The stock trades about -0.15 of its potential returns per unit of risk. The Repsol is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,140  in Repsol on October 23, 2024 and sell it today you would earn a total of  10.00  from holding Repsol or generate 0.88% return on investment over 90 days.

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

Telefonica  vs.  Repsol

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.

Repsol

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Repsol are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Repsol is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Telefonica and Repsol

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

The idea behind Telefonica and Repsol 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.