Correlation Between Verizon Communications and Tesla

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

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

Diversification Opportunities for Verizon Communications and Tesla

0.16

Correlation Coefficient

Verizon Communications  Tesla

Average diversification

The 3 months correlation between Verizon and Tesla is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and Tesla Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tesla Inc 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 Tesla. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tesla Inc has no effect on the direction of Verizon Communications i.e., Verizon Communications and Tesla go up and down completely randomly.

Pair Corralation between Verizon Communications and Tesla

Assuming the 90 days trading horizon Verizon Communications is expected to under-perform the Tesla. But the stock apears to be less risky and, when comparing its historical volatility, Verizon Communications is 4.41 times less risky than Tesla. The stock trades about -0.2 of its potential returns per unit of risk. The Tesla Inc is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  8,350  in Tesla Inc on October 24, 2024 and sell it today you would lose (324.00) from holding Tesla Inc or give up 3.88% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	94.74%
Values	Daily Returns

Verizon Communications  vs.  Tesla Inc

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.

Tesla Inc

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tesla Inc are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Tesla sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Verizon Communications and Tesla

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

The idea behind Verizon Communications and Tesla Inc 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.