Can any of the company-specific risk be diversified away by investing in both Platinum 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 Platinum and Telefonica into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Platinum and Telefonica SA ADR, you can compare the effects of market volatilities on Platinum 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 Platinum with a short position of Telefonica. Check out your portfolio center. Please also check ongoing floating volatility patterns of Platinum and Telefonica.
Diversification Opportunities for Platinum and Telefonica
The 3 months correlation between Platinum and Telefonica is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Platinum 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 Platinum 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 Platinum 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 Platinum i.e., Platinum and Telefonica go up and down completely randomly.
Assuming the 90 days horizon Platinum is expected to generate 1.78 times less return on investment than Telefonica. In addition to that, Platinum is 1.34 times more volatile than Telefonica SA ADR. It trades about 0.05 of its total potential returns per unit of risk. Telefonica SA ADR is currently generating about 0.13 per unit of volatility. If you would invest 456.00 in Telefonica SA ADR on March 6, 2024 and sell it today you would earn a total of 15.00 from holding Telefonica SA ADR or generate 3.29% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Platinum are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Platinum may actually be approaching a critical reversion point that can send shares even higher in July 2024.
Compared to the overall equity markets, risk-adjusted returns on investments in Telefonica SA ADR are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Telefonica may actually be approaching a critical reversion point that can send shares even higher in July 2024.