Correlation Between Power Metal and Verizon Communications

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

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

Diversification Opportunities for Power Metal and Verizon Communications

0.6

Correlation Coefficient

Power Metal  Verizon Communications

Poor diversification

The 3 months correlation between Power and Verizon is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Power Metal Resources and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications and Power Metal 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 Power Metal Resources 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 Power Metal i.e., Power Metal and Verizon Communications go up and down completely randomly.

Pair Corralation between Power Metal and Verizon Communications

Assuming the 90 days trading horizon Power Metal Resources is expected to under-perform the Verizon Communications. In addition to that, Power Metal is 2.74 times more volatile than Verizon Communications. It trades about -0.01 of its total potential returns per unit of risk. Verizon Communications is currently generating about 0.07 per unit of volatility. If you would invest  4,140  in Verizon Communications on September 5, 2024 and sell it today you would earn a total of  250.00  from holding Verizon Communications or generate 6.04% return on investment over 90 days.

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

Power Metal Resources  vs.  Verizon Communications

Power Metal Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Power Metal Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Power Metal is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Verizon Communications

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Verizon Communications are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Verizon Communications is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Power Metal and Verizon Communications

The main advantage of trading using opposite Power Metal and Verizon Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Power Metal 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 Power Metal Resources 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.

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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.