Correlation Between Telefonica and Telenor ASA

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

Diversification Opportunities for Telefonica and Telenor ASA

0.92

Correlation Coefficient

Telefonica  Telenor ASA

Almost no diversification

The 3 months correlation between Telefonica and Telenor is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Telefonica SA ADR and Telenor ASA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telenor ASA ADR 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 Telenor ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telenor ASA ADR has no effect on the direction of Telefonica i.e., Telefonica and Telenor ASA go up and down completely randomly.

Pair Corralation between Telefonica and Telenor ASA

Considering the 90-day investment horizon Telefonica is expected to generate 1.82 times less return on investment than Telenor ASA. In addition to that, Telefonica is 1.1 times more volatile than Telenor ASA ADR. It trades about 0.23 of its total potential returns per unit of risk. Telenor ASA ADR is currently generating about 0.45 per unit of volatility. If you would invest  1,115  in Telenor ASA ADR on December 30, 2024 and sell it today you would earn a total of  332.00  from holding Telenor ASA ADR or generate 29.78% return on investment over 90 days.

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

Telefonica SA ADR  vs.  Telenor ASA ADR

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.

Telenor ASA ADR

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Telenor ASA ADR are ranked lower than 35 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Telenor ASA showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Telefonica and Telenor ASA

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

The idea behind Telefonica SA ADR and Telenor ASA ADR 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.