Correlation Between Verizon Communications and DHC Acquisition

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

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

Diversification Opportunities for Verizon Communications and DHC Acquisition

-0.41

Correlation Coefficient

Verizon Communications  DHC Acquisition

Very good diversification

The 3 months correlation between Verizon and DHC is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and DHC Acquisition Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DHC Acquisition Corp 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 DHC Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DHC Acquisition Corp has no effect on the direction of Verizon Communications i.e., Verizon Communications and DHC Acquisition go up and down completely randomly.

Pair Corralation between Verizon Communications and DHC Acquisition

Allowing for the 90-day total investment horizon Verizon Communications is expected to generate 2.44 times more return on investment than DHC Acquisition. However, Verizon Communications is 2.44 times more volatile than DHC Acquisition Corp. It trades about 0.03 of its potential returns per unit of risk. DHC Acquisition Corp is currently generating about 0.02 per unit of risk. If you would invest  3,504  in Verizon Communications on September 24, 2024 and sell it today you would earn a total of  489.00  from holding Verizon Communications or generate 13.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	27.91%
Values	Daily Returns

Verizon Communications  vs.  DHC Acquisition Corp

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

DHC Acquisition Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DHC Acquisition Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, DHC Acquisition is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Verizon Communications and DHC Acquisition

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

The idea behind Verizon Communications and DHC Acquisition Corp 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.