Correlation Between Microsoft and Telefonica

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

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

Diversification Opportunities for Microsoft and Telefonica

0.48

Correlation Coefficient

Microsoft  Telefonica

Very weak diversification

The 3 months correlation between Microsoft and Telefonica is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft 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 Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and Telefonica go up and down completely randomly.

Pair Corralation between Microsoft and Telefonica

Given the investment horizon of 90 days Microsoft is expected to under-perform the Telefonica. In addition to that, Microsoft is 1.17 times more volatile than Telefonica SA ADR. It trades about -0.24 of its total potential returns per unit of risk. Telefonica SA ADR is currently generating about -0.07 per unit of volatility. If you would invest  428.00  in Telefonica SA ADR on January 20, 2024 and sell it today you would lose (6.00) from holding Telefonica SA ADR or give up 1.4% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Microsoft  vs.  Telefonica SA ADR

Microsoft

Risk-Adjusted Performance

2 of 100

Weak

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

Telefonica SA ADR

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Telefonica SA ADR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Telefonica is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Microsoft and Telefonica

The main advantage of trading using opposite Microsoft and Telefonica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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 Microsoft 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.