Correlation Between Telefonica Brasil and Telefonica

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

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

Diversification Opportunities for Telefonica Brasil and Telefonica

-0.67

Correlation Coefficient

Telefonica Brasil  Telefonica

Excellent diversification

The 3 months correlation between Telefonica and Telefonica is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Telefonica Brasil SA 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 Telefonica Brasil 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 Brasil SA 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 Telefonica Brasil i.e., Telefonica Brasil and Telefonica go up and down completely randomly.

Pair Corralation between Telefonica Brasil and Telefonica

Considering the 90-day investment horizon Telefonica Brasil is expected to generate 1.08 times less return on investment than Telefonica. In addition to that, Telefonica Brasil is 1.18 times more volatile than Telefonica SA ADR. It trades about 0.04 of its total potential returns per unit of risk. Telefonica SA ADR is currently generating about 0.05 per unit of volatility. If you would invest  384.00  in Telefonica SA ADR on February 22, 2024 and sell it today you would earn a total of  65.50  from holding Telefonica SA ADR or generate 17.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.6%
Values	Daily Returns

Telefonica Brasil SA  vs.  Telefonica SA ADR

Telefonica Brasil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Telefonica Brasil SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's forward indicators remain fairly stable which may send shares a bit higher in June 2024. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Telefonica SA ADR

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Telefonica SA ADR are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Telefonica may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Telefonica Brasil and Telefonica

The main advantage of trading using opposite Telefonica Brasil and Telefonica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Telefonica Brasil 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 Telefonica Brasil SA 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.