Correlation Between Telefonica and MTN Group

Can any of the company-specific risk be diversified away by investing in both Telefonica and MTN Group 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 MTN Group 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 MTN Group Ltd, you can compare the effects of market volatilities on Telefonica and MTN Group 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 MTN Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Telefonica and MTN Group.

Diversification Opportunities for Telefonica and MTN Group

0.81

Correlation Coefficient

Telefonica  MTN Group

Very poor diversification

The 3 months correlation between Telefonica and MTN is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Telefonica SA ADR and MTN Group Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MTN Group 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 MTN Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MTN Group has no effect on the direction of Telefonica i.e., Telefonica and MTN Group go up and down completely randomly.

Pair Corralation between Telefonica and MTN Group

Considering the 90-day investment horizon Telefonica SA ADR is expected to generate 0.51 times more return on investment than MTN Group. However, Telefonica SA ADR is 1.98 times less risky than MTN Group. It trades about -0.06 of its potential returns per unit of risk. MTN Group Ltd is currently generating about -0.05 per unit of risk. If you would invest  466.00  in Telefonica SA ADR on September 4, 2024 and sell it today you would lose (21.00) from holding Telefonica SA ADR or give up 4.51% of portfolio value over 90 days.

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

Telefonica SA ADR  vs.  MTN Group Ltd

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.

MTN Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MTN Group Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Telefonica and MTN Group

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

The idea behind Telefonica SA ADR and MTN Group Ltd 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.