Correlation Between Verizon Communications and Xiaomi

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

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

Diversification Opportunities for Verizon Communications and Xiaomi

-0.47

Correlation Coefficient

Verizon Communications  Xiaomi

Very good diversification

The 3 months correlation between Verizon and Xiaomi is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and Xiaomi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xiaomi 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 Xiaomi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xiaomi has no effect on the direction of Verizon Communications i.e., Verizon Communications and Xiaomi go up and down completely randomly.

Pair Corralation between Verizon Communications and Xiaomi

Assuming the 90 days horizon Verizon Communications is expected to under-perform the Xiaomi. But the stock apears to be less risky and, when comparing its historical volatility, Verizon Communications is 2.13 times less risky than Xiaomi. The stock trades about -0.02 of its potential returns per unit of risk. The Xiaomi is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  6,750  in Xiaomi on October 23, 2024 and sell it today you would earn a total of  2,950  from holding Xiaomi or generate 43.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Verizon Communications  vs.  Xiaomi

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 fairly strong primary indicators, Verizon Communications is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Xiaomi

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xiaomi are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, Xiaomi displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Verizon Communications and Xiaomi

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

The idea behind Verizon Communications and Xiaomi 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.