Correlation Between Verizon Communications and Visa

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

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

Diversification Opportunities for Verizon Communications and Visa

0.06

Correlation Coefficient

Verizon Communications  Visa

Significant diversification

The 3 months correlation between Verizon and Visa is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and Visa Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Visa 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 Visa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Visa Inc has no effect on the direction of Verizon Communications i.e., Verizon Communications and Visa go up and down completely randomly.

Pair Corralation between Verizon Communications and Visa

Assuming the 90 days horizon Verizon Communications is expected to under-perform the Visa. In addition to that, Verizon Communications is 1.48 times more volatile than Visa Inc. It trades about -0.12 of its total potential returns per unit of risk. Visa Inc is currently generating about 0.24 per unit of volatility. If you would invest  628,500  in Visa Inc on October 7, 2024 and sell it today you would earn a total of  21,987  from holding Visa Inc or generate 3.5% return on investment over 90 days.

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

Verizon Communications  vs.  Visa 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.

Visa Inc

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Inc are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Visa showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Verizon Communications and Visa

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

The idea behind Verizon Communications and Visa 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.