Correlation Between Softbank Group and Telefonica

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

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

Diversification Opportunities for Softbank Group and Telefonica

0.16

Correlation Coefficient

Softbank Group  Telefonica

Average diversification

The 3 months correlation between Softbank and Telefonica is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Softbank Group Corp 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 Softbank 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 Softbank Group Corp 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 Softbank Group i.e., Softbank Group and Telefonica go up and down completely randomly.

Pair Corralation between Softbank Group and Telefonica

Assuming the 90 days horizon Softbank Group Corp is expected to generate 2.65 times more return on investment than Telefonica. However, Softbank Group is 2.65 times more volatile than Telefonica SA ADR. It trades about 0.07 of its potential returns per unit of risk. Telefonica SA ADR is currently generating about 0.05 per unit of risk. If you would invest  3,883  in Softbank Group Corp on September 4, 2024 and sell it today you would earn a total of  1,912  from holding Softbank Group Corp or generate 49.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.6%
Values	Daily Returns

Softbank Group Corp  vs.  Telefonica SA ADR

Softbank Group Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Softbank Group Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental drivers, Softbank Group reported solid returns over the last few months and may actually be approaching a breakup point.

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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Softbank Group and Telefonica

The main advantage of trading using opposite Softbank Group and Telefonica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Softbank Group 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 Softbank Group Corp 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.