Correlation Between Telefnica and ATT

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

By analyzing existing cross correlation between Telefnica SA and ATT Inc, you can compare the effects of market volatilities on Telefnica and ATT 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 ATT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Telefnica and ATT.

Diversification Opportunities for Telefnica and ATT

0.12

Correlation Coefficient

Telefnica  ATT

Average diversification

The 3 months correlation between Telefnica and ATT is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Telefnica SA and ATT Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ATT Inc 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 ATT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ATT Inc has no effect on the direction of Telefnica i.e., Telefnica and ATT go up and down completely randomly.

Pair Corralation between Telefnica and ATT

Assuming the 90 days trading horizon Telefnica is expected to generate 3.36 times less return on investment than ATT. In addition to that, Telefnica is 1.14 times more volatile than ATT Inc. It trades about 0.04 of its total potential returns per unit of risk. ATT Inc is currently generating about 0.16 per unit of volatility. If you would invest  3,295  in ATT Inc on September 22, 2024 and sell it today you would earn a total of  1,320  from holding ATT Inc or generate 40.06% return on investment over 90 days.

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

Telefnica SA  vs.  ATT Inc

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 somewhat strong basic indicators, Telefnica is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

ATT Inc

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ATT Inc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ATT sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Telefnica and ATT

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

The idea behind Telefnica SA and ATT Inc 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.