Correlation Between Verizon Communications and Telephone

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

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

Diversification Opportunities for Verizon Communications and Telephone

0.4

Correlation Coefficient

Verizon Communications  Telephone

Very weak diversification

The 3 months correlation between Verizon and Telephone is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and Telephone and Data in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telephone and Data and Verizon 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 Verizon Communications are associated (or correlated) with Telephone. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telephone and Data has no effect on the direction of Verizon Communications i.e., Verizon Communications and Telephone go up and down completely randomly.

Pair Corralation between Verizon Communications and Telephone

Allowing for the 90-day total investment horizon Verizon Communications is expected to under-perform the Telephone. But the stock apears to be less risky and, when comparing its historical volatility, Verizon Communications is 1.31 times less risky than Telephone. The stock trades about -0.15 of its potential returns per unit of risk. The Telephone and Data is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,567  in Telephone and Data on January 30, 2024 and sell it today you would earn a total of  11.00  from holding Telephone and Data or generate 0.7% return on investment over 90 days.

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

Verizon Communications  vs.  Telephone and Data

Verizon Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Verizon Communications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Verizon Communications is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Telephone and Data

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Telephone and Data has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's fundamental indicators remain comparatively stable which may send shares a bit higher in May 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Verizon Communications and Telephone

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

The idea behind Verizon Communications and Telephone and Data 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.