Correlation Between Telecomunicaes Brasileiras and Verizon Communications

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

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

Diversification Opportunities for Telecomunicaes Brasileiras and Verizon Communications

-0.29

Correlation Coefficient

Telecomunicaes Brasileiras  Verizon Communications

Very good diversification

The 3 months correlation between Telecomunicaes and Verizon is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Telecomunicaes Brasileiras SA and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications and Telecomunicaes Brasileiras 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 Telecomunicaes Brasileiras SA 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 Telecomunicaes Brasileiras i.e., Telecomunicaes Brasileiras and Verizon Communications go up and down completely randomly.

Pair Corralation between Telecomunicaes Brasileiras and Verizon Communications

Assuming the 90 days trading horizon Telecomunicaes Brasileiras SA is expected to under-perform the Verizon Communications. In addition to that, Telecomunicaes Brasileiras is 1.63 times more volatile than Verizon Communications. It trades about -0.05 of its total potential returns per unit of risk. Verizon Communications is currently generating about 0.12 per unit of volatility. If you would invest  3,972  in Verizon Communications on September 3, 2024 and sell it today you would earn a total of  447.00  from holding Verizon Communications or generate 11.25% return on investment over 90 days.

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

Telecomunicaes Brasileiras SA  vs.  Verizon Communications

Telecomunicaes Brasileiras

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Telecomunicaes Brasileiras SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Verizon Communications

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Verizon Communications are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Verizon Communications may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Telecomunicaes Brasileiras and Verizon Communications

The main advantage of trading using opposite Telecomunicaes Brasileiras and Verizon Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Telecomunicaes Brasileiras 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 Telecomunicaes Brasileiras SA 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.