Correlation Between Telefonica and KDDI Corp

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

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

Diversification Opportunities for Telefonica and KDDI Corp

0.13

Correlation Coefficient

Telefonica  KDDI Corp

Average diversification

The 3 months correlation between Telefonica and KDDI is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Telefonica SA ADR and KDDI Corp PK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KDDI Corp PK and Telefonica 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 Telefonica SA ADR are associated (or correlated) with KDDI Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KDDI Corp PK has no effect on the direction of Telefonica i.e., Telefonica and KDDI Corp go up and down completely randomly.

Pair Corralation between Telefonica and KDDI Corp

Considering the 90-day investment horizon Telefonica SA ADR is expected to under-perform the KDDI Corp. But the stock apears to be less risky and, when comparing its historical volatility, Telefonica SA ADR is 1.09 times less risky than KDDI Corp. The stock trades about -0.06 of its potential returns per unit of risk. The KDDI Corp PK is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,671  in KDDI Corp PK on September 4, 2024 and sell it today you would lose (11.00) from holding KDDI Corp PK or give up 0.66% of portfolio value over 90 days.

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

Telefonica SA ADR  vs.  KDDI Corp PK

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.

KDDI Corp PK

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KDDI Corp PK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward indicators, KDDI Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Telefonica and KDDI Corp

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

The idea behind Telefonica SA ADR and KDDI Corp PK 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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.