Correlation Between Verizon Communications and Highway Holdings

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

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

Diversification Opportunities for Verizon Communications and Highway Holdings

-0.25

Correlation Coefficient

Verizon Communications  Highway Holdings

Very good diversification

The 3 months correlation between Verizon and Highway is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and Highway Holdings Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Highway Holdings 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 Highway Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Highway Holdings has no effect on the direction of Verizon Communications i.e., Verizon Communications and Highway Holdings go up and down completely randomly.

Pair Corralation between Verizon Communications and Highway Holdings

Allowing for the 90-day total investment horizon Verizon Communications is expected to under-perform the Highway Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Verizon Communications is 3.54 times less risky than Highway Holdings. The stock trades about -0.02 of its potential returns per unit of risk. The Highway Holdings Limited is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  180.00  in Highway Holdings Limited on September 12, 2024 and sell it today you would earn a total of  16.00  from holding Highway Holdings Limited or generate 8.89% 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.  Highway Holdings Limited

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 current stock price disturbance, may contribute to short-term losses for the investors.

Highway Holdings

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Highway Holdings Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical indicators, Highway Holdings displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Verizon Communications and Highway Holdings

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

The idea behind Verizon Communications and Highway Holdings Limited 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.