Correlation Between Verizon Communications and PCCW

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

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

Diversification Opportunities for Verizon Communications and PCCW

0.06

Correlation Coefficient

Verizon Communications  PCCW

Significant diversification

The 3 months correlation between Verizon and PCCW is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and PCCW Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PCCW Limited 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 PCCW. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PCCW Limited has no effect on the direction of Verizon Communications i.e., Verizon Communications and PCCW go up and down completely randomly.

Pair Corralation between Verizon Communications and PCCW

Allowing for the 90-day total investment horizon Verizon Communications is expected to generate 0.36 times more return on investment than PCCW. However, Verizon Communications is 2.78 times less risky than PCCW. It trades about 0.14 of its potential returns per unit of risk. PCCW Limited is currently generating about 0.05 per unit of risk. If you would invest  3,925  in Verizon Communications on December 19, 2024 and sell it today you would earn a total of  498.00  from holding Verizon Communications or generate 12.69% return on investment over 90 days.

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

Verizon Communications  vs.  PCCW Limited

Verizon Communications

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Verizon Communications are ranked lower than 11 (%) 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.

PCCW Limited

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PCCW Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak essential indicators, PCCW reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Verizon Communications and PCCW

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

The idea behind Verizon Communications and PCCW 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.