Correlation Between Telefonica and Rapid Micro

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

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

Diversification Opportunities for Telefonica and Rapid Micro

-0.49

Correlation Coefficient

Telefonica  Rapid Micro

Very good diversification

The 3 months correlation between Telefonica and Rapid is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Telefonica SA ADR and Rapid Micro Biosystems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rapid Micro Biosystems and Telefonica 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 SA ADR are associated (or correlated) with Rapid Micro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rapid Micro Biosystems has no effect on the direction of Telefonica i.e., Telefonica and Rapid Micro go up and down completely randomly.

Pair Corralation between Telefonica and Rapid Micro

Considering the 90-day investment horizon Telefonica SA ADR is expected to under-perform the Rapid Micro. But the stock apears to be less risky and, when comparing its historical volatility, Telefonica SA ADR is 4.04 times less risky than Rapid Micro. The stock trades about -0.36 of its potential returns per unit of risk. The Rapid Micro Biosystems is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  87.00  in Rapid Micro Biosystems on August 17, 2024 and sell it today you would earn a total of  17.00  from holding Rapid Micro Biosystems or generate 19.54% return on investment over 90 days.

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

Telefonica SA ADR  vs.  Rapid Micro Biosystems

Telefonica SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

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

Rapid Micro Biosystems

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rapid Micro Biosystems are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain forward indicators, Rapid Micro exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Telefonica and Rapid Micro

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

The idea behind Telefonica SA ADR and Rapid Micro Biosystems 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.

Check out your portfolio center.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.