Correlation Between Consolidated Communications and Telefonica

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

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

Diversification Opportunities for Consolidated Communications and Telefonica

-0.45

Correlation Coefficient

Consolidated Communications  Telefonica

Very good diversification

The 3 months correlation between Consolidated and Telefonica is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Consolidated Communications 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 Consolidated Communications 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 Consolidated Communications 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 Consolidated Communications i.e., Consolidated Communications and Telefonica go up and down completely randomly.

Pair Corralation between Consolidated Communications and Telefonica

Given the investment horizon of 90 days Consolidated Communications is expected to generate 7.76 times less return on investment than Telefonica. But when comparing it to its historical volatility, Consolidated Communications is 2.04 times less risky than Telefonica. It trades about 0.06 of its potential returns per unit of risk. Telefonica SA ADR is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  416.00  in Telefonica SA ADR on February 4, 2024 and sell it today you would earn a total of  40.00  from holding Telefonica SA ADR or generate 9.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Consolidated Communications  vs.  Telefonica SA ADR

Consolidated Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Consolidated Communications has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Consolidated Communications is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Telefonica SA ADR

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Telefonica SA ADR are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain technical and fundamental indicators, Telefonica reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Consolidated Communications and Telefonica

The main advantage of trading using opposite Consolidated Communications and Telefonica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Consolidated Communications 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 Consolidated Communications 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.