Correlation Between Vodafone Group and Telefónica

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

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

Diversification Opportunities for Vodafone Group and Telefónica

0.69

Correlation Coefficient

Vodafone Group  Telefónica

Poor diversification

The 3 months correlation between Vodafone and Telefónica is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Vodafone Group PLC 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 PLC are associated (or correlated) with Telefónica. 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 Telefónica go up and down completely randomly.

Pair Corralation between Vodafone Group and Telefónica

Considering the 90-day investment horizon Vodafone Group PLC is expected to generate 0.35 times more return on investment than Telefónica. However, Vodafone Group PLC is 2.86 times less risky than Telefónica. It trades about 0.18 of its potential returns per unit of risk. Telefnica SA is currently generating about 0.05 per unit of risk. If you would invest  837.00  in Vodafone Group PLC on December 22, 2024 and sell it today you would earn a total of  136.00  from holding Vodafone Group PLC or generate 16.25% return on investment over 90 days.

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

Vodafone Group PLC  vs.  Telefnica SA

Vodafone Group PLC

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vodafone Group PLC are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal basic indicators, Vodafone Group exhibited solid returns over the last few months and may actually be approaching a breakup point.

Telefnica SA

Risk-Adjusted Performance

Insignificant

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

Pair Trading with Vodafone Group and Telefónica

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

The idea behind Vodafone Group PLC 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.