Correlation Between Verizon Communications and Barclays PLC

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

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

Diversification Opportunities for Verizon Communications and Barclays PLC

0.27

Correlation Coefficient

Verizon Communications  Barclays PLC

Modest diversification

The 3 months correlation between Verizon and Barclays is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and Barclays PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barclays PLC and Verizon Communications 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 Verizon Communications are associated (or correlated) with Barclays PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Barclays PLC has no effect on the direction of Verizon Communications i.e., Verizon Communications and Barclays PLC go up and down completely randomly.

Pair Corralation between Verizon Communications and Barclays PLC

Assuming the 90 days trading horizon Verizon Communications is expected to under-perform the Barclays PLC. But the stock apears to be less risky and, when comparing its historical volatility, Verizon Communications is 2.56 times less risky than Barclays PLC. The stock trades about -0.24 of its potential returns per unit of risk. The Barclays PLC is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  8,160  in Barclays PLC on October 23, 2024 and sell it today you would earn a total of  500.00  from holding Barclays PLC or generate 6.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	94.44%
Values	Daily Returns

Verizon Communications  vs.  Barclays PLC

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. Despite somewhat strong basic indicators, Verizon Communications is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Barclays PLC

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Barclays PLC are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Barclays PLC sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Verizon Communications and Barclays PLC

The main advantage of trading using opposite Verizon Communications and Barclays PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Verizon Communications position performs unexpectedly, Barclays PLC 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 Barclays PLC will offset losses from the drop in Barclays PLC's long position.

The idea behind Verizon Communications and Barclays PLC 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.