Correlation Between ATT and Telecom

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

By analyzing existing cross correlation between ATT Inc and Telecom Italia Capital, you can compare the effects of market volatilities on ATT and Telecom 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 ATT with a short position of Telecom. Check out your portfolio center. Please also check ongoing floating volatility patterns of ATT and Telecom.

Diversification Opportunities for ATT and Telecom

-0.36

Correlation Coefficient

ATT  Telecom

Very good diversification

The 3 months correlation between ATT and Telecom is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding ATT Inc and Telecom Italia Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telecom Italia Capital and ATT 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 ATT Inc are associated (or correlated) with Telecom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telecom Italia Capital has no effect on the direction of ATT i.e., ATT and Telecom go up and down completely randomly.

Pair Corralation between ATT and Telecom

Taking into account the 90-day investment horizon ATT Inc is expected to generate 1.01 times more return on investment than Telecom. However, ATT is 1.01 times more volatile than Telecom Italia Capital. It trades about 0.08 of its potential returns per unit of risk. Telecom Italia Capital is currently generating about -0.1 per unit of risk. If you would invest  2,132  in ATT Inc on September 24, 2024 and sell it today you would earn a total of  143.00  from holding ATT Inc or generate 6.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

ATT Inc  vs.  Telecom Italia Capital

ATT Inc

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ATT Inc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, ATT may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Telecom Italia Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Telecom Italia Capital has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for Telecom Italia Capital investors.

Pair Trading with ATT and Telecom

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

The idea behind ATT Inc and Telecom Italia Capital 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.