Correlation Between Verizon Communications and First Trust

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

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

Diversification Opportunities for Verizon Communications and First Trust

-0.32

Correlation Coefficient

Verizon Communications  First Trust

Very good diversification

The 3 months correlation between Verizon and First is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and First Trust Cboe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Cboe 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Cboe has no effect on the direction of Verizon Communications i.e., Verizon Communications and First Trust go up and down completely randomly.

Pair Corralation between Verizon Communications and First Trust

Allowing for the 90-day total investment horizon Verizon Communications is expected to under-perform the First Trust. In addition to that, Verizon Communications is 8.54 times more volatile than First Trust Cboe. It trades about -0.13 of its total potential returns per unit of risk. First Trust Cboe is currently generating about 0.51 per unit of volatility. If you would invest  3,033  in First Trust Cboe on September 18, 2024 and sell it today you would earn a total of  46.00  from holding First Trust Cboe or generate 1.52% return on investment over 90 days.

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

Verizon Communications  vs.  First Trust Cboe

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

First Trust Cboe

Risk-Adjusted Performance

17 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Cboe are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, First Trust is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Verizon Communications and First Trust

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

The idea behind Verizon Communications and First Trust Cboe 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.