Correlation Between Verizon Communications and Exchange Bankshares

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

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

Diversification Opportunities for Verizon Communications and Exchange Bankshares

0.33

Correlation Coefficient

Verizon Communications  Exchange Bankshares

Weak diversification

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

Pair Corralation between Verizon Communications and Exchange Bankshares

Allowing for the 90-day total investment horizon Verizon Communications is expected to generate 8.36 times more return on investment than Exchange Bankshares. However, Verizon Communications is 8.36 times more volatile than Exchange Bankshares. It trades about 0.13 of its potential returns per unit of risk. Exchange Bankshares is currently generating about 0.58 per unit of risk. If you would invest  3,922  in Verizon Communications on December 21, 2024 and sell it today you would earn a total of  453.00  from holding Verizon Communications or generate 11.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	5.08%
Values	Daily Returns

Verizon Communications  vs.  Exchange Bankshares

Verizon Communications

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Verizon Communications are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Verizon Communications may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Exchange Bankshares

Risk-Adjusted Performance

Excellent

Over the last 90 days Exchange Bankshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly weak fundamental indicators, Exchange Bankshares may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Verizon Communications and Exchange Bankshares

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

The idea behind Verizon Communications and Exchange Bankshares 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.