Correlation Between TIM Participacoes and Telefonica

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

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

Diversification Opportunities for TIM Participacoes and Telefonica

0.83

Correlation Coefficient

TIM Participacoes  Telefonica

Very poor diversification

The 3 months correlation between TIM and Telefonica is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding TIM Participacoes SA and Telefonica SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefonica SA ADR and TIM Participacoes 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 TIM Participacoes SA are associated (or correlated) with Telefonica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telefonica SA ADR has no effect on the direction of TIM Participacoes i.e., TIM Participacoes and Telefonica go up and down completely randomly.

Pair Corralation between TIM Participacoes and Telefonica

Given the investment horizon of 90 days TIM Participacoes SA is expected to generate 2.02 times more return on investment than Telefonica. However, TIM Participacoes is 2.02 times more volatile than Telefonica SA ADR. It trades about 0.24 of its potential returns per unit of risk. Telefonica SA ADR is currently generating about 0.22 per unit of risk. If you would invest  1,165  in TIM Participacoes SA on December 29, 2024 and sell it today you would earn a total of  394.00  from holding TIM Participacoes SA or generate 33.82% return on investment over 90 days.

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

TIM Participacoes SA  vs.  Telefonica SA ADR

TIM Participacoes

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in TIM Participacoes SA are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak primary indicators, TIM Participacoes sustained solid returns over the last few months and may actually be approaching a breakup point.

Telefonica SA ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Telefonica SA ADR are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical and fundamental indicators, Telefonica reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TIM Participacoes and Telefonica

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

The idea behind TIM Participacoes SA and Telefonica 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.

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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..