Correlation Between Telefnica and TIM SA

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

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

Diversification Opportunities for Telefnica and TIM SA

0.07

Correlation Coefficient

Telefnica  TIM SA

Significant diversification

The 3 months correlation between Telefnica and TIM is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Telefnica SA and TIM SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TIM SA and Telefnica 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 Telefnica SA are associated (or correlated) with TIM SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TIM SA has no effect on the direction of Telefnica i.e., Telefnica and TIM SA go up and down completely randomly.

Pair Corralation between Telefnica and TIM SA

Assuming the 90 days trading horizon Telefnica SA is expected to generate 1.32 times more return on investment than TIM SA. However, Telefnica is 1.32 times more volatile than TIM SA. It trades about -0.03 of its potential returns per unit of risk. TIM SA is currently generating about -0.2 per unit of risk. If you would invest  2,597  in Telefnica SA on September 24, 2024 and sell it today you would lose (143.00) from holding Telefnica SA or give up 5.51% of portfolio value over 90 days.

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

Telefnica SA  vs.  TIM SA

Telefnica SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Telefnica SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Telefnica is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

TIM SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TIM SA 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 basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Telefnica and TIM SA

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

The idea behind Telefnica SA and TIM 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.

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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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.