Correlation Between Telefonica Brasil and Telenor ASA

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

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

Diversification Opportunities for Telefonica Brasil and Telenor ASA

0.62

Correlation Coefficient

Telefonica Brasil  Telenor ASA

Poor diversification

The 3 months correlation between Telefonica and Telenor is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Telefonica Brasil SA and Telenor ASA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telenor ASA ADR and Telefonica Brasil 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 Telefonica Brasil SA are associated (or correlated) with Telenor ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telenor ASA ADR has no effect on the direction of Telefonica Brasil i.e., Telefonica Brasil and Telenor ASA go up and down completely randomly.

Pair Corralation between Telefonica Brasil and Telenor ASA

Considering the 90-day investment horizon Telefonica Brasil is expected to generate 1.54 times less return on investment than Telenor ASA. In addition to that, Telefonica Brasil is 1.98 times more volatile than Telenor ASA ADR. It trades about 0.15 of its total potential returns per unit of risk. Telenor ASA ADR is currently generating about 0.45 per unit of volatility. If you would invest  1,115  in Telenor ASA ADR on December 30, 2024 and sell it today you would earn a total of  332.00  from holding Telenor ASA ADR or generate 29.78% return on investment over 90 days.

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

Telefonica Brasil SA  vs.  Telenor ASA ADR

Telefonica Brasil

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Telefonica Brasil SA are ranked lower than 11 (%) 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.

Telenor ASA ADR

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Telenor ASA ADR are ranked lower than 35 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Telenor ASA showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Telefonica Brasil and Telenor ASA

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

The idea behind Telefonica Brasil SA and Telenor ASA 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.

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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 Money Managers module to screen money managers from public funds and ETFs managed around the world.