Correlation Between Verizon Communications and BP Plc
Can any of the company-specific risk be diversified away by investing in both Verizon Communications and BP Plc 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 BP Plc into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Verizon Communications and BP plc, you can compare the effects of market volatilities on Verizon Communications and BP Plc 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 BP Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Verizon Communications and BP Plc.
Diversification Opportunities for Verizon Communications and BP Plc
0.48 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Verizon and BP-A is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and BP plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP plc 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 BP Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BP plc has no effect on the direction of Verizon Communications i.e., Verizon Communications and BP Plc go up and down completely randomly.
Pair Corralation between Verizon Communications and BP Plc
Assuming the 90 days trading horizon Verizon Communications is expected to generate 1.09 times more return on investment than BP Plc. However, Verizon Communications is 1.09 times more volatile than BP plc. It trades about -0.01 of its potential returns per unit of risk. BP plc is currently generating about -0.04 per unit of risk. If you would invest 4,145 in Verizon Communications on October 10, 2024 and sell it today you would lose (130.00) from holding Verizon Communications or give up 3.14% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Verizon Communications vs. BP plc
Performance |
Timeline |
Verizon Communications |
BP plc |
Verizon Communications and BP Plc Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Verizon Communications and BP Plc
The main advantage of trading using opposite Verizon Communications and BP Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Verizon Communications position performs unexpectedly, BP Plc 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 BP Plc will offset losses from the drop in BP Plc's long position.Verizon Communications vs. Samsung Electronics Co | Verizon Communications vs. Samsung Electronics Co | Verizon Communications vs. Toyota Motor Corp | Verizon Communications vs. Reliance Industries Ltd |
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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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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