Correlation Between SMC Entertainment and Telefonica Brasil

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

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

Diversification Opportunities for SMC Entertainment and Telefonica Brasil

0.8

Correlation Coefficient

SMC Entertainment  Telefonica Brasil

Very poor diversification

The 3 months correlation between SMC and Telefonica is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding SMC Entertainment and Telefonica Brasil SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefonica Brasil and SMC Entertainment 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 SMC Entertainment 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 SMC Entertainment i.e., SMC Entertainment and Telefonica Brasil go up and down completely randomly.

Pair Corralation between SMC Entertainment and Telefonica Brasil

Given the investment horizon of 90 days SMC Entertainment is expected to under-perform the Telefonica Brasil. In addition to that, SMC Entertainment is 5.53 times more volatile than Telefonica Brasil SA. It trades about -0.06 of its total potential returns per unit of risk. Telefonica Brasil SA is currently generating about -0.12 per unit of volatility. If you would invest  972.00  in Telefonica Brasil SA on September 12, 2024 and sell it today you would lose (124.00) from holding Telefonica Brasil SA or give up 12.76% of portfolio value over 90 days.

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

SMC Entertainment  vs.  Telefonica Brasil SA

SMC Entertainment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SMC Entertainment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

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 unfluctuating performance in the last few months, the Stock's forward indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with SMC Entertainment and Telefonica Brasil

The main advantage of trading using opposite SMC Entertainment and Telefonica Brasil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SMC Entertainment 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 SMC Entertainment 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.

Check out your portfolio center.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.