Correlation Between Phillips and Verizon Communications

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

By analyzing existing cross correlation between Phillips 66 and Verizon Communications, you can compare the effects of market volatilities on Phillips 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 Phillips with a short position of Verizon Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Phillips and Verizon Communications.

Diversification Opportunities for Phillips and Verizon Communications

0.45

Correlation Coefficient

Phillips  Verizon Communications

Very weak diversification

The 3 months correlation between Phillips and Verizon is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Phillips 66 and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications and Phillips 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 Phillips 66 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 Phillips i.e., Phillips and Verizon Communications go up and down completely randomly.

Pair Corralation between Phillips and Verizon Communications

Assuming the 90 days trading horizon Phillips 66 is expected to generate 0.92 times more return on investment than Verizon Communications. However, Phillips 66 is 1.09 times less risky than Verizon Communications. It trades about 0.08 of its potential returns per unit of risk. Verizon Communications is currently generating about 0.03 per unit of risk. If you would invest  34,068  in Phillips 66 on December 25, 2024 and sell it today you would earn a total of  2,582  from holding Phillips 66 or generate 7.58% return on investment over 90 days.

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

Phillips 66  vs.  Verizon Communications

Phillips 66

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Phillips 66 are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Phillips may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Verizon Communications

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Verizon Communications are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Verizon Communications is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Phillips and Verizon Communications

The main advantage of trading using opposite Phillips and Verizon Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Phillips 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 Phillips 66 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..