Correlation Between Telefonica and SoftBank Group

Can any of the company-specific risk be diversified away by investing in both Telefonica and SoftBank Group 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 SoftBank Group 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 SoftBank Group Corp, you can compare the effects of market volatilities on Telefonica and SoftBank Group 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 SoftBank Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Telefonica and SoftBank Group.

Diversification Opportunities for Telefonica and SoftBank Group

-0.57

Correlation Coefficient

Telefonica  SoftBank Group

Excellent diversification

The 3 months correlation between Telefonica and SoftBank is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Telefonica SA ADR and SoftBank Group Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SoftBank Group Corp 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 SoftBank Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SoftBank Group Corp has no effect on the direction of Telefonica i.e., Telefonica and SoftBank Group go up and down completely randomly.

Pair Corralation between Telefonica and SoftBank Group

Considering the 90-day investment horizon Telefonica SA ADR is expected to generate 0.36 times more return on investment than SoftBank Group. However, Telefonica SA ADR is 2.81 times less risky than SoftBank Group. It trades about 0.24 of its potential returns per unit of risk. SoftBank Group Corp is currently generating about -0.04 per unit of risk. If you would invest  403.00  in Telefonica SA ADR on December 21, 2024 and sell it today you would earn a total of  60.00  from holding Telefonica SA ADR or generate 14.89% return on investment over 90 days.

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

Telefonica SA ADR  vs.  SoftBank Group 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 18 (%) 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.

SoftBank Group Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days SoftBank Group Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Telefonica and SoftBank Group

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

The idea behind Telefonica SA ADR and SoftBank Group Corp 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.