Correlation Between Vodafone Group and Telefnica

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

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

Diversification Opportunities for Vodafone Group and Telefnica

0.69

Correlation Coefficient

Vodafone Group  Telefnica

Poor diversification

The 3 months correlation between Vodafone and Telefnica is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Vodafone Group Public and Telefnica SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefnica SA and Vodafone Group 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 Vodafone Group Public are associated (or correlated) with Telefnica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telefnica SA has no effect on the direction of Vodafone Group i.e., Vodafone Group and Telefnica go up and down completely randomly.

Pair Corralation between Vodafone Group and Telefnica

Assuming the 90 days trading horizon Vodafone Group Public is expected to under-perform the Telefnica. But the stock apears to be less risky and, when comparing its historical volatility, Vodafone Group Public is 1.16 times less risky than Telefnica. The stock trades about -0.04 of its potential returns per unit of risk. The Telefnica SA is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  2,658  in Telefnica SA on December 5, 2024 and sell it today you would lose (75.00) from holding Telefnica SA or give up 2.82% of portfolio value over 90 days.

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

Vodafone Group Public  vs.  Telefnica SA

Vodafone Group Public

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vodafone Group Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Vodafone Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Telefnica SA

Risk-Adjusted Performance

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.

Pair Trading with Vodafone Group and Telefnica

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

The idea behind Vodafone Group Public and Telefnica 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.

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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 Transaction History module to view history of all your transactions and understand their impact on performance.