Correlation Between Telenor ASA and Nippon Telegraph

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

By analyzing existing cross correlation between Telenor ASA ADR and Nippon Telegraph Telephone, you can compare the effects of market volatilities on Telenor ASA and Nippon Telegraph 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 Telenor ASA with a short position of Nippon Telegraph. Check out your portfolio center. Please also check ongoing floating volatility patterns of Telenor ASA and Nippon Telegraph.

Diversification Opportunities for Telenor ASA and Nippon Telegraph

0.39

Correlation Coefficient

Telenor ASA  Nippon Telegraph

Weak diversification

The 3 months correlation between Telenor and Nippon is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Telenor ASA ADR and Nippon Telegraph Telephone in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nippon Telegraph Tel and Telenor ASA 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 Telenor ASA ADR are associated (or correlated) with Nippon Telegraph. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nippon Telegraph Tel has no effect on the direction of Telenor ASA i.e., Telenor ASA and Nippon Telegraph go up and down completely randomly.

Pair Corralation between Telenor ASA and Nippon Telegraph

Assuming the 90 days horizon Telenor ASA ADR is expected to under-perform the Nippon Telegraph. But the pink sheet apears to be less risky and, when comparing its historical volatility, Telenor ASA ADR is 3.48 times less risky than Nippon Telegraph. The pink sheet trades about -0.02 of its potential returns per unit of risk. The Nippon Telegraph Telephone is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  103.00  in Nippon Telegraph Telephone on September 28, 2024 and sell it today you would lose (2.00) from holding Nippon Telegraph Telephone or give up 1.94% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	91.43%
Values	Daily Returns

Telenor ASA ADR  vs.  Nippon Telegraph Telephone

Telenor ASA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Telenor ASA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Nippon Telegraph Tel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nippon Telegraph Telephone has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Nippon Telegraph is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Telenor ASA and Nippon Telegraph

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

The idea behind Telenor ASA ADR and Nippon Telegraph Telephone 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.