Correlation Between Vodafone Group and Telefonica Brasil

Can any of the company-specific risk be diversified away by investing in both Vodafone Group and Telefonica Brasil 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 Telefonica Brasil 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 Telefonica Brasil SA, you can compare the effects of market volatilities on Vodafone Group and Telefonica Brasil 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 Telefonica Brasil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vodafone Group and Telefonica Brasil.

Diversification Opportunities for Vodafone Group and Telefonica Brasil

0.72

Correlation Coefficient

Vodafone Group  Telefonica Brasil

Poor diversification

The 3 months correlation between Vodafone and Telefonica is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Vodafone Group PLC and Telefonica Brasil SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefonica Brasil 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 Telefonica Brasil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telefonica Brasil has no effect on the direction of Vodafone Group i.e., Vodafone Group and Telefonica Brasil go up and down completely randomly.

Pair Corralation between Vodafone Group and Telefonica Brasil

Assuming the 90 days horizon Vodafone Group PLC is expected to generate 2.14 times more return on investment than Telefonica Brasil. However, Vodafone Group is 2.14 times more volatile than Telefonica Brasil SA. It trades about 0.02 of its potential returns per unit of risk. Telefonica Brasil SA is currently generating about -0.03 per unit of risk. If you would invest  80.00  in Vodafone Group PLC on October 26, 2024 and sell it today you would earn a total of  3.00  from holding Vodafone Group PLC or generate 3.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	84.64%
Values	Daily Returns

Vodafone Group PLC  vs.  Telefonica Brasil SA

Vodafone Group PLC

Risk-Adjusted Performance

0 of 100

Very Weak

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

Telefonica Brasil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Telefonica Brasil SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's forward indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Vodafone Group and Telefonica Brasil

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

The idea behind Vodafone Group PLC and Telefonica Brasil 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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .