Correlation Between Telefónica and Orange SA

Can any of the company-specific risk be diversified away by investing in both Telefónica 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 Telefónica 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 ADR, you can compare the effects of market volatilities on Telefónica 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 Telefónica with a short position of Orange SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Telefónica and Orange SA.

Diversification Opportunities for Telefónica and Orange SA

0.0

Correlation Coefficient

Telefónica  Orange SA

Pay attention - limited upside

The 3 months correlation between Telefónica and Orange is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Telefnica SA and Orange SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orange SA ADR and Telefónica 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 ADR has no effect on the direction of Telefónica i.e., Telefónica and Orange SA go up and down completely randomly.

Pair Corralation between Telefónica and Orange SA

If you would invest  423.00  in Telefnica SA on December 22, 2024 and sell it today you would earn a total of  37.00  from holding Telefnica SA or generate 8.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

Telefnica SA  vs.  Orange SA ADR

Telefnica SA

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Telefnica SA are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Telefónica reported solid returns over the last few months and may actually be approaching a breakup point.

Orange SA ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Orange SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Orange SA is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Telefónica and Orange SA

The main advantage of trading using opposite Telefónica and Orange SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Telefónica 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 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.

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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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.