Correlation Between KINDER and Verizon Communications

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

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

Diversification Opportunities for KINDER and Verizon Communications

0.6

Correlation Coefficient

KINDER  Verizon Communications

Poor diversification

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

Pair Corralation between KINDER and Verizon Communications

Assuming the 90 days trading horizon KINDER MORGAN ENERGY is expected to generate 0.71 times more return on investment than Verizon Communications. However, KINDER MORGAN ENERGY is 1.4 times less risky than Verizon Communications. It trades about -0.05 of its potential returns per unit of risk. Verizon Communications is currently generating about -0.12 per unit of risk. If you would invest  9,015  in KINDER MORGAN ENERGY on October 20, 2024 and sell it today you would lose (202.00) from holding KINDER MORGAN ENERGY or give up 2.24% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	77.05%
Values	Daily Returns

KINDER MORGAN ENERGY  vs.  Verizon Communications

KINDER MORGAN ENERGY

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KINDER MORGAN ENERGY has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, KINDER is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Verizon Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Verizon Communications 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 strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with KINDER and Verizon Communications

The main advantage of trading using opposite KINDER and Verizon Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KINDER 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 KINDER MORGAN ENERGY 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.