Correlation Between TELEFONICA and Ross Stores

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

By analyzing existing cross correlation between TELEFONICA EUROPE B and Ross Stores, you can compare the effects of market volatilities on TELEFONICA and Ross Stores 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 Ross Stores. Check out your portfolio center. Please also check ongoing floating volatility patterns of TELEFONICA and Ross Stores.

Diversification Opportunities for TELEFONICA and Ross Stores

0.58

Correlation Coefficient

TELEFONICA  Ross Stores

Very weak diversification

The 3 months correlation between TELEFONICA and Ross is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding TELEFONICA EUROPE B and Ross Stores in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ross Stores 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 EUROPE B are associated (or correlated) with Ross Stores. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ross Stores has no effect on the direction of TELEFONICA i.e., TELEFONICA and Ross Stores go up and down completely randomly.

Pair Corralation between TELEFONICA and Ross Stores

Assuming the 90 days trading horizon TELEFONICA EUROPE B is expected to under-perform the Ross Stores. But the bond apears to be less risky and, when comparing its historical volatility, TELEFONICA EUROPE B is 3.61 times less risky than Ross Stores. The bond trades about -0.27 of its potential returns per unit of risk. The Ross Stores is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  13,959  in Ross Stores on August 31, 2024 and sell it today you would earn a total of  1,530  from holding Ross Stores or generate 10.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.65%
Values	Daily Returns

TELEFONICA EUROPE B  vs.  Ross Stores

TELEFONICA EUROPE

Risk-Adjusted Performance

0 of 100

Very Weak

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

Ross Stores

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ross Stores are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Ross Stores is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with TELEFONICA and Ross Stores

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

The idea behind TELEFONICA EUROPE B and Ross Stores 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.