Correlation Between Verizon Communications and Occidental Petroleum

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

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

Diversification Opportunities for Verizon Communications and Occidental Petroleum

-0.28

Correlation Coefficient

Verizon Communications  Occidental Petroleum

Very good diversification

The 3 months correlation between Verizon and Occidental is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and Occidental Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Occidental Petroleum 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 Occidental Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Occidental Petroleum has no effect on the direction of Verizon Communications i.e., Verizon Communications and Occidental Petroleum go up and down completely randomly.

Pair Corralation between Verizon Communications and Occidental Petroleum

Assuming the 90 days trading horizon Verizon Communications is expected to under-perform the Occidental Petroleum. But the stock apears to be less risky and, when comparing its historical volatility, Verizon Communications is 1.39 times less risky than Occidental Petroleum. The stock trades about -0.18 of its potential returns per unit of risk. The Occidental Petroleum is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  4,959  in Occidental Petroleum on October 27, 2024 and sell it today you would lose (106.00) from holding Occidental Petroleum or give up 2.14% of portfolio value over 90 days.

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

Verizon Communications  vs.  Occidental Petroleum

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.

Occidental Petroleum

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Occidental Petroleum are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Occidental Petroleum is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Verizon Communications and Occidental Petroleum

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

The idea behind Verizon Communications and Occidental Petroleum 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.