Correlation Between Telefnica and Orange SA

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

By analyzing existing cross correlation between Telefnica SA and Orange SA, you can compare the effects of market volatilities on Telefnica and Orange SA 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 Telefnica with a short position of Orange SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Telefnica and Orange SA.

Diversification Opportunities for Telefnica and Orange SA

0.45

Correlation Coefficient

Telefnica  Orange SA

Very weak diversification

The 3 months correlation between Telefnica and Orange is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Telefnica SA and Orange SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orange SA and Telefnica 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 Telefnica SA are associated (or correlated) with Orange SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orange SA has no effect on the direction of Telefnica i.e., Telefnica and Orange SA go up and down completely randomly.

Pair Corralation between Telefnica and Orange SA

Assuming the 90 days horizon Telefnica SA is expected to under-perform the Orange SA. In addition to that, Telefnica is 1.06 times more volatile than Orange SA. It trades about -0.07 of its total potential returns per unit of risk. Orange SA is currently generating about -0.04 per unit of volatility. If you would invest  1,123  in Orange SA on October 9, 2024 and sell it today you would lose (119.00) from holding Orange SA or give up 10.6% of portfolio value over 90 days.

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

Telefnica SA  vs.  Orange SA

Telefnica SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Telefnica SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic 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.

Orange SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Orange SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak 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 Telefnica and Orange SA

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

The idea behind Telefnica SA and Orange SA 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.