Correlation Between KBC Groep and Verizon Communications

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

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

Diversification Opportunities for KBC Groep and Verizon Communications

0.35

Correlation Coefficient

KBC Groep  Verizon Communications

Weak diversification

The 3 months correlation between KBC and Verizon is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding KBC Groep NV and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications and KBC Groep 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 KBC Groep NV are associated (or correlated) with Verizon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of KBC Groep i.e., KBC Groep and Verizon Communications go up and down completely randomly.

Pair Corralation between KBC Groep and Verizon Communications

Assuming the 90 days horizon KBC Groep NV is expected to under-perform the Verizon Communications. In addition to that, KBC Groep is 1.83 times more volatile than Verizon Communications. It trades about -0.26 of its total potential returns per unit of risk. Verizon Communications is currently generating about 0.06 per unit of volatility. If you would invest  4,365  in Verizon Communications on July 22, 2024 and sell it today you would earn a total of  34.00  from holding Verizon Communications or generate 0.78% return on investment over 90 days.

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

KBC Groep NV  vs.  Verizon Communications

KBC Groep NV

Risk-Adjusted Performance

0 of 100

Very Weak

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

Verizon Communications

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Verizon Communications are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Verizon Communications showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KBC Groep and Verizon Communications

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

The idea behind KBC Groep NV and Verizon Communications 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.