Correlation Between Telefonica Brasil and Telia Company

Can any of the company-specific risk be diversified away by investing in both Telefonica Brasil and Telia Company 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 Telia Company 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 Telia Company AB, you can compare the effects of market volatilities on Telefonica Brasil and Telia Company 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 Telia Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of Telefonica Brasil and Telia Company.

Diversification Opportunities for Telefonica Brasil and Telia Company

0.33

Correlation Coefficient

Telefonica Brasil  Telia Company

Weak diversification

The 3 months correlation between Telefonica and Telia is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Telefonica Brasil SA and Telia Company AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telia Company 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 Telia Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telia Company has no effect on the direction of Telefonica Brasil i.e., Telefonica Brasil and Telia Company go up and down completely randomly.

Pair Corralation between Telefonica Brasil and Telia Company

Considering the 90-day investment horizon Telefonica Brasil SA is expected to generate 0.9 times more return on investment than Telia Company. However, Telefonica Brasil SA is 1.11 times less risky than Telia Company. It trades about 0.01 of its potential returns per unit of risk. Telia Company AB is currently generating about -0.06 per unit of risk. If you would invest  955.00  in Telefonica Brasil SA on January 18, 2024 and sell it today you would lose (23.00) from holding Telefonica Brasil SA or give up 2.41% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	76.81%
Values	Daily Returns

Telefonica Brasil SA  vs.  Telia Company AB

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 latest inconsistent performance, the Stock's forward indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Telia Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Telia Company AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Telefonica Brasil and Telia Company

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

The idea behind Telefonica Brasil SA and Telia Company AB 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.