Correlation Between Verizon Communications and US Financial

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

By analyzing existing cross correlation between Verizon Communications CDR and US Financial 15, you can compare the effects of market volatilities on Verizon Communications and US Financial 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 US Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Verizon Communications and US Financial.

Diversification Opportunities for Verizon Communications and US Financial

-0.33

Correlation Coefficient

Verizon Communications  US Financial

Very good diversification

The 3 months correlation between Verizon and FTU-PB is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications CDR and US Financial 15 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Financial 15 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 CDR are associated (or correlated) with US Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Financial 15 has no effect on the direction of Verizon Communications i.e., Verizon Communications and US Financial go up and down completely randomly.

Pair Corralation between Verizon Communications and US Financial

Assuming the 90 days trading horizon Verizon Communications is expected to generate 1.36 times less return on investment than US Financial. But when comparing it to its historical volatility, Verizon Communications CDR is 1.27 times less risky than US Financial. It trades about 0.04 of its potential returns per unit of risk. US Financial 15 is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  549.00  in US Financial 15 on September 5, 2024 and sell it today you would earn a total of  223.00  from holding US Financial 15 or generate 40.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Verizon Communications CDR  vs.  US Financial 15

Verizon Communications

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Verizon Communications CDR are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, Verizon Communications may actually be approaching a critical reversion point that can send shares even higher in January 2025.

US Financial 15

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in US Financial 15 are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, US Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Verizon Communications and US Financial

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

The idea behind Verizon Communications CDR and US Financial 15 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.