Correlation Between Verizon Communications and Overlay Shares

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

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

Diversification Opportunities for Verizon Communications and Overlay Shares

0.76

Correlation Coefficient

Verizon Communications  Overlay Shares

Poor diversification

The 3 months correlation between Verizon and Overlay is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and Overlay Shares Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Overlay Shares Core 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 Overlay Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Overlay Shares Core has no effect on the direction of Verizon Communications i.e., Verizon Communications and Overlay Shares go up and down completely randomly.

Pair Corralation between Verizon Communications and Overlay Shares

Allowing for the 90-day total investment horizon Verizon Communications is expected to generate 4.06 times more return on investment than Overlay Shares. However, Verizon Communications is 4.06 times more volatile than Overlay Shares Core. It trades about 0.16 of its potential returns per unit of risk. Overlay Shares Core is currently generating about 0.06 per unit of risk. If you would invest  3,920  in Verizon Communications on December 27, 2024 and sell it today you would earn a total of  576.00  from holding Verizon Communications or generate 14.69% return on investment over 90 days.

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

Verizon Communications  vs.  Overlay Shares Core

Verizon Communications

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Verizon Communications are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Verizon Communications showed solid returns over the last few months and may actually be approaching a breakup point.

Overlay Shares Core

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Overlay Shares Core are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Overlay Shares is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Verizon Communications and Overlay Shares

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

The idea behind Verizon Communications and Overlay Shares Core 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.