Correlation Between Verizon Communications and NIKE

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

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

Diversification Opportunities for Verizon Communications and NIKE

0.38

Correlation Coefficient

Verizon Communications  NIKE

Weak diversification

The 3 months correlation between Verizon and NIKE is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and NIKE Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NIKE 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 NIKE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NIKE Inc has no effect on the direction of Verizon Communications i.e., Verizon Communications and NIKE go up and down completely randomly.

Pair Corralation between Verizon Communications and NIKE

Assuming the 90 days horizon Verizon Communications is expected to generate 0.76 times more return on investment than NIKE. However, Verizon Communications is 1.32 times less risky than NIKE. It trades about 0.06 of its potential returns per unit of risk. NIKE Inc is currently generating about -0.02 per unit of risk. If you would invest  71,894  in Verizon Communications on September 25, 2024 and sell it today you would earn a total of  8,807  from holding Verizon Communications or generate 12.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.2%
Values	Daily Returns

Verizon Communications  vs.  NIKE 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. 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.

NIKE Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NIKE Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and 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 NIKE

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

The idea behind Verizon Communications and NIKE 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.