Correlation Between TelstraLimited and TPG Telecom

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

By analyzing existing cross correlation between Telstra Limited and TPG Telecom Limited, you can compare the effects of market volatilities on TelstraLimited and TPG Telecom 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 TelstraLimited with a short position of TPG Telecom. Check out your portfolio center. Please also check ongoing floating volatility patterns of TelstraLimited and TPG Telecom.

Diversification Opportunities for TelstraLimited and TPG Telecom

0.02

Correlation Coefficient

TelstraLimited  TPG Telecom

Significant diversification

The 3 months correlation between TelstraLimited and TPG is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Telstra Limited and TPG Telecom Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TPG Telecom Limited and TelstraLimited 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 Telstra Limited are associated (or correlated) with TPG Telecom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TPG Telecom Limited has no effect on the direction of TelstraLimited i.e., TelstraLimited and TPG Telecom go up and down completely randomly.

Pair Corralation between TelstraLimited and TPG Telecom

Assuming the 90 days horizon Telstra Limited is expected to generate 1.83 times more return on investment than TPG Telecom. However, TelstraLimited is 1.83 times more volatile than TPG Telecom Limited. It trades about 0.05 of its potential returns per unit of risk. TPG Telecom Limited is currently generating about -0.13 per unit of risk. If you would invest  238.00  in Telstra Limited on November 28, 2024 and sell it today you would earn a total of  20.00  from holding Telstra Limited or generate 8.4% return on investment over 90 days.

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

Telstra Limited  vs.  TPG Telecom Limited

Telstra Limited

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Telstra Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, TelstraLimited reported solid returns over the last few months and may actually be approaching a breakup point.

TPG Telecom Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days TPG Telecom Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with TelstraLimited and TPG Telecom

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

The idea behind Telstra Limited and TPG Telecom Limited 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 Commodity Directory module to find actively traded commodities issued by global exchanges.