Correlation Between Nippon Telegraph and Deutsche Telekom

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

By analyzing existing cross correlation between Nippon Telegraph Telephone and Deutsche Telekom AG, you can compare the effects of market volatilities on Nippon Telegraph and Deutsche Telekom 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 Nippon Telegraph with a short position of Deutsche Telekom. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nippon Telegraph and Deutsche Telekom.

Diversification Opportunities for Nippon Telegraph and Deutsche Telekom

0.78

Correlation Coefficient

Nippon Telegraph  Deutsche Telekom

Poor diversification

The 24 months correlation between Nippon and Deutsche is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Nippon Telegraph Telephone and Deutsche Telekom AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deutsche Telekom and Nippon Telegraph 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 Nippon Telegraph Telephone are associated (or correlated) with Deutsche Telekom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deutsche Telekom has no effect on the direction of Nippon Telegraph i.e., Nippon Telegraph and Deutsche Telekom go up and down completely randomly.

Pair Corralation between Nippon Telegraph and Deutsche Telekom

Assuming the 90 days horizon Nippon Telegraph Telephone is expected to under-perform the Deutsche Telekom. In addition to that, Nippon Telegraph is 1.1 times more volatile than Deutsche Telekom AG. It trades about -0.22 of its total potential returns per unit of risk. Deutsche Telekom AG is currently generating about 0.0 per unit of volatility. If you would invest  2,249  in Deutsche Telekom AG on January 20, 2024 and sell it today you would lose (16.00) from holding Deutsche Telekom AG or give up 0.71% of portfolio value over 90 days.

Time Period	24 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Nippon Telegraph Telephone  vs.  Deutsche Telekom AG

Nippon Telegraph Tel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nippon Telegraph Telephone has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Nippon Telegraph is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Deutsche Telekom

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Deutsche Telekom AG are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Deutsche Telekom is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Nippon Telegraph and Deutsche Telekom

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

The idea behind Nippon Telegraph Telephone and Deutsche Telekom AG 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.