Correlation Between Nippon Telegraph and Telefonica

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

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

Diversification Opportunities for Nippon Telegraph and Telefonica

0.56

Correlation Coefficient

Nippon Telegraph  Telefonica

Very weak diversification

The 3 months correlation between Nippon and Telefonica is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Nippon Telegraph Telephone and Telefonica SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefonica SA ADR and Nippon Telegraph 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 Nippon Telegraph Telephone are associated (or correlated) with Telefonica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telefonica SA ADR has no effect on the direction of Nippon Telegraph i.e., Nippon Telegraph and Telefonica go up and down completely randomly.

Pair Corralation between Nippon Telegraph and Telefonica

Assuming the 90 days horizon Nippon Telegraph is expected to generate 6.76 times less return on investment than Telefonica. In addition to that, Nippon Telegraph is 2.84 times more volatile than Telefonica SA ADR. It trades about 0.0 of its total potential returns per unit of risk. Telefonica SA ADR is currently generating about 0.04 per unit of volatility. If you would invest  377.00  in Telefonica SA ADR on September 12, 2024 and sell it today you would earn a total of  68.00  from holding Telefonica SA ADR or generate 18.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.73%
Values	Daily Returns

Nippon Telegraph Telephone  vs.  Telefonica SA ADR

Nippon Telegraph Tel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nippon Telegraph Telephone has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Telefonica SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Telefonica SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Telefonica is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Nippon Telegraph and Telefonica

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

The idea behind Nippon Telegraph Telephone and Telefonica SA 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.