Correlation Between Verizon Communications and STEP Energy

Can any of the company-specific risk be diversified away by investing in both Verizon Communications and STEP Energy 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 STEP Energy 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 STEP Energy Services, you can compare the effects of market volatilities on Verizon Communications and STEP Energy 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 STEP Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Verizon Communications and STEP Energy.

Diversification Opportunities for Verizon Communications and STEP Energy

-0.27

Correlation Coefficient

Verizon Communications  STEP Energy

Very good diversification

The 3 months correlation between Verizon and STEP is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications CDR and STEP Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STEP Energy Services 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 STEP Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STEP Energy Services has no effect on the direction of Verizon Communications i.e., Verizon Communications and STEP Energy go up and down completely randomly.

Pair Corralation between Verizon Communications and STEP Energy

Assuming the 90 days trading horizon Verizon Communications CDR is expected to generate 0.83 times more return on investment than STEP Energy. However, Verizon Communications CDR is 1.21 times less risky than STEP Energy. It trades about 0.11 of its potential returns per unit of risk. STEP Energy Services is currently generating about 0.01 per unit of risk. If you would invest  1,712  in Verizon Communications CDR on December 24, 2024 and sell it today you would earn a total of  188.00  from holding Verizon Communications CDR or generate 10.98% return on investment over 90 days.

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

Verizon Communications CDR  vs.  STEP Energy Services

Verizon Communications

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Verizon Communications CDR are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Verizon Communications may actually be approaching a critical reversion point that can send shares even higher in April 2025.

STEP Energy Services

Risk-Adjusted Performance

Very Weak

Over the last 90 days STEP Energy Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, STEP Energy is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Verizon Communications and STEP Energy

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

The idea behind Verizon Communications CDR and STEP Energy Services 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.