Correlation Between Telefonica and KT

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

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

Diversification Opportunities for Telefonica and KT

0.72

Correlation Coefficient

Telefonica  KT

Poor diversification

The 3 months correlation between Telefonica and KT is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Telefonica SA ADR and KT Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KT Corporation 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 SA ADR are associated (or correlated) with KT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KT Corporation has no effect on the direction of Telefonica i.e., Telefonica and KT go up and down completely randomly.

Pair Corralation between Telefonica and KT

Considering the 90-day investment horizon Telefonica SA ADR is expected to generate 0.78 times more return on investment than KT. However, Telefonica SA ADR is 1.28 times less risky than KT. It trades about 0.23 of its potential returns per unit of risk. KT Corporation is currently generating about 0.16 per unit of risk. If you would invest  402.00  in Telefonica SA ADR on December 28, 2024 and sell it today you would earn a total of  60.00  from holding Telefonica SA ADR or generate 14.93% return on investment over 90 days.

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

Telefonica SA ADR  vs.  KT Corp.

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.

KT Corporation

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in KT Corporation are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, KT unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Telefonica and KT

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

The idea behind Telefonica SA ADR and KT Corporation 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.