Correlation Between Verizon Communications and Compass Group
Can any of the company-specific risk be diversified away by investing in both Verizon Communications and Compass Group 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 Compass Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Verizon Communications and Compass Group PLC, you can compare the effects of market volatilities on Verizon Communications and Compass Group 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 Compass Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Verizon Communications and Compass Group.
Diversification Opportunities for Verizon Communications and Compass Group
-0.15 | Correlation Coefficient |
Good diversification
The 3 months correlation between Verizon and Compass is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and Compass Group PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compass Group 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 Compass Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compass Group PLC has no effect on the direction of Verizon Communications i.e., Verizon Communications and Compass Group go up and down completely randomly.
Pair Corralation between Verizon Communications and Compass Group
Assuming the 90 days trading horizon Verizon Communications is expected to generate 1.61 times more return on investment than Compass Group. However, Verizon Communications is 1.61 times more volatile than Compass Group PLC. It trades about 0.08 of its potential returns per unit of risk. Compass Group PLC is currently generating about -0.1 per unit of risk. If you would invest 4,000 in Verizon Communications on December 24, 2024 and sell it today you would earn a total of 375.00 from holding Verizon Communications or generate 9.38% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
Verizon Communications vs. Compass Group PLC
Performance |
Timeline |
Verizon Communications |
Compass Group PLC |
Verizon Communications and Compass Group Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Verizon Communications and Compass Group
The main advantage of trading using opposite Verizon Communications and Compass Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Verizon Communications position performs unexpectedly, Compass Group 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 Compass Group will offset losses from the drop in Compass Group's long position.Verizon Communications vs. Scottish American Investment | Verizon Communications vs. Caledonia Mining | Verizon Communications vs. Griffin Mining | Verizon Communications vs. Primorus Investments plc |
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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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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