Correlation Between SK Telecom and Verizon Communications

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

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

Diversification Opportunities for SK Telecom and Verizon Communications

0.31

Correlation Coefficient

SK Telecom  Verizon Communications

Weak diversification

The 3 months correlation between SKM and Verizon is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding SK Telecom Co and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications and SK Telecom 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 SK Telecom Co 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 SK Telecom i.e., SK Telecom and Verizon Communications go up and down completely randomly.

Pair Corralation between SK Telecom and Verizon Communications

Considering the 90-day investment horizon SK Telecom Co is expected to under-perform the Verizon Communications. But the stock apears to be less risky and, when comparing its historical volatility, SK Telecom Co is 1.26 times less risky than Verizon Communications. The stock trades about -0.01 of its potential returns per unit of risk. The Verizon Communications is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  3,924  in Verizon Communications on December 26, 2024 and sell it today you would earn a total of  495.00  from holding Verizon Communications or generate 12.61% return on investment over 90 days.

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

SK Telecom Co  vs.  Verizon Communications

SK Telecom

Risk-Adjusted Performance

Very Weak

Over the last 90 days SK Telecom Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward-looking signals, SK Telecom is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Verizon Communications

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Verizon Communications are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Verizon Communications showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SK Telecom and Verizon Communications

The main advantage of trading using opposite SK Telecom and Verizon Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SK Telecom 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 SK Telecom Co 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.