Correlation Between Telefnica and Vodafone Group

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

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

Diversification Opportunities for Telefnica and Vodafone Group

0.71

Correlation Coefficient

Telefnica  Vodafone Group

Poor diversification

The 3 months correlation between Telefnica and Vodafone is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Telefnica SA 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 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 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 Telefnica i.e., Telefnica and Vodafone Group go up and down completely randomly.

Pair Corralation between Telefnica and Vodafone Group

Assuming the 90 days horizon Telefnica SA is expected to generate 3.82 times more return on investment than Vodafone Group. However, Telefnica is 3.82 times more volatile than Vodafone Group PLC. It trades about 0.04 of its potential returns per unit of risk. Vodafone Group PLC is currently generating about 0.01 per unit of risk. If you would invest  293.00  in Telefnica SA on October 9, 2024 and sell it today you would earn a total of  117.00  from holding Telefnica SA or generate 39.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	88.45%
Values	Daily Returns

Telefnica SA  vs.  Vodafone Group PLC

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.

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. In spite of latest abnormal performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Telefnica and Vodafone Group

The main advantage of trading using opposite Telefnica and Vodafone Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Telefnica 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 Telefnica SA 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.