Correlation Between Telecom Italia and Telefonica Brasil

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

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

Diversification Opportunities for Telecom Italia and Telefonica Brasil

0.56

Correlation Coefficient

Telecom Italia  Telefonica Brasil

Very weak diversification

The 3 months correlation between Telecom and Telefonica is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Telecom Italia SpA and Telefonica Brasil SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefonica Brasil and Telecom Italia 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 Telecom Italia SpA are associated (or correlated) with Telefonica Brasil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telefonica Brasil has no effect on the direction of Telecom Italia i.e., Telecom Italia and Telefonica Brasil go up and down completely randomly.

Pair Corralation between Telecom Italia and Telefonica Brasil

Assuming the 90 days horizon Telecom Italia SpA is expected to generate 0.97 times more return on investment than Telefonica Brasil. However, Telecom Italia SpA is 1.03 times less risky than Telefonica Brasil. It trades about 0.13 of its potential returns per unit of risk. Telefonica Brasil SA is currently generating about 0.12 per unit of risk. If you would invest  28.00  in Telecom Italia SpA on December 21, 2024 and sell it today you would earn a total of  4.00  from holding Telecom Italia SpA or generate 14.29% return on investment over 90 days.

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

Telecom Italia SpA  vs.  Telefonica Brasil SA

Telecom Italia SpA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Telecom Italia SpA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak forward-looking indicators, Telecom Italia reported solid returns over the last few months and may actually be approaching a breakup point.

Telefonica Brasil

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Telefonica Brasil SA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating forward indicators, Telefonica Brasil showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Telecom Italia and Telefonica Brasil

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

The idea behind Telecom Italia SpA and Telefonica Brasil 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.

Check out your portfolio center.

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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.