Correlation Between Verizon Communications and New Oriental

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

By analyzing existing cross correlation between Verizon Communications and New Oriental Education, you can compare the effects of market volatilities on Verizon Communications and New Oriental 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 New Oriental. Check out your portfolio center. Please also check ongoing floating volatility patterns of Verizon Communications and New Oriental.

Diversification Opportunities for Verizon Communications and New Oriental

0.03

Correlation Coefficient

Verizon Communications  New Oriental

Significant diversification

The 3 months correlation between Verizon and New is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and New Oriental Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Oriental Education 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 New Oriental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Oriental Education has no effect on the direction of Verizon Communications i.e., Verizon Communications and New Oriental go up and down completely randomly.

Pair Corralation between Verizon Communications and New Oriental

Assuming the 90 days trading horizon Verizon Communications is expected to generate 0.51 times more return on investment than New Oriental. However, Verizon Communications is 1.94 times less risky than New Oriental. It trades about -0.04 of its potential returns per unit of risk. New Oriental Education is currently generating about -0.04 per unit of risk. If you would invest  4,101  in Verizon Communications on October 20, 2024 and sell it today you would lose (177.00) from holding Verizon Communications or give up 4.32% of portfolio value over 90 days.

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

Verizon Communications  vs.  New Oriental Education

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 current stock price disturbance, may contribute to short-term losses for the investors.

New Oriental Education

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days New Oriental Education has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental 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 Verizon Communications and New Oriental

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

The idea behind Verizon Communications and New Oriental Education 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.