Correlation Between Telefonica and SK Telecom

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

Diversification Opportunities for Telefonica and SK Telecom

0.2

Correlation Coefficient

Telefonica  SK Telecom

Modest diversification

The 3 months correlation between Telefonica and SKM is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Telefonica SA ADR and SK Telecom Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SK Telecom 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 SK Telecom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SK Telecom has no effect on the direction of Telefonica i.e., Telefonica and SK Telecom go up and down completely randomly.

Pair Corralation between Telefonica and SK Telecom

Considering the 90-day investment horizon Telefonica SA ADR is expected to generate 0.87 times more return on investment than SK Telecom. However, Telefonica SA ADR is 1.15 times less risky than SK Telecom. It trades about 0.23 of its potential returns per unit of risk. SK Telecom Co is currently generating about 0.0 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  61.00  from holding Telefonica SA ADR or generate 15.17% return on investment over 90 days.

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

Telefonica SA ADR  vs.  SK Telecom Co

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.

SK Telecom

Risk-Adjusted Performance

Very Weak

Over the last 90 days SK Telecom Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward-looking signals, SK Telecom is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Telefonica and SK Telecom

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

The idea behind Telefonica SA ADR and SK Telecom Co 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.