Correlation Between Telefonica and Vodafone Group

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

Diversification Opportunities for Telefonica and Vodafone Group

0.67

Correlation Coefficient

Telefonica  Vodafone Group

Poor diversification

The 3 months correlation between Telefonica and Vodafone is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Telefonica SA ADR and Vodafone Group PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vodafone Group PLC 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 Vodafone Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vodafone Group PLC has no effect on the direction of Telefonica i.e., Telefonica and Vodafone Group go up and down completely randomly.

Pair Corralation between Telefonica and Vodafone Group

Considering the 90-day investment horizon Telefonica is expected to generate 1.59 times less return on investment than Vodafone Group. But when comparing it to its historical volatility, Telefonica SA ADR is 4.06 times less risky than Vodafone Group. It trades about 0.03 of its potential returns per unit of risk. Vodafone Group PLC is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  112.00  in Vodafone Group PLC on October 11, 2024 and sell it today you would lose (27.00) from holding Vodafone Group PLC or give up 24.11% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	83.03%
Values	Daily Returns

Telefonica SA ADR  vs.  Vodafone Group PLC

Telefonica SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Telefonica SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Vodafone Group PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vodafone Group PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Telefonica and Vodafone Group

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

The idea behind Telefonica SA ADR and Vodafone Group PLC 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.