Correlation Between Vodacom Group and Telefonica

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

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

Diversification Opportunities for Vodacom Group and Telefonica

0.82

Correlation Coefficient

Vodacom Group  Telefonica

Very poor diversification

The 3 months correlation between Vodacom and Telefonica is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Vodacom Group Ltd and Telefonica SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefonica SA ADR and Vodacom Group 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 Vodacom Group Ltd are associated (or correlated) with Telefonica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telefonica SA ADR has no effect on the direction of Vodacom Group i.e., Vodacom Group and Telefonica go up and down completely randomly.

Pair Corralation between Vodacom Group and Telefonica

Assuming the 90 days horizon Vodacom Group is expected to generate 2.35 times less return on investment than Telefonica. In addition to that, Vodacom Group is 1.7 times more volatile than Telefonica SA ADR. It trades about 0.01 of its total potential returns per unit of risk. Telefonica SA ADR is currently generating about 0.04 per unit of volatility. If you would invest  377.00  in Telefonica SA ADR on September 12, 2024 and sell it today you would earn a total of  68.00  from holding Telefonica SA ADR or generate 18.04% return on investment over 90 days.

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

Vodacom Group Ltd  vs.  Telefonica SA ADR

Vodacom Group

Risk-Adjusted Performance

0 of 100

Very Weak

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

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 recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Vodacom Group and Telefonica

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

The idea behind Vodacom Group Ltd and Telefonica SA ADR 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.