Correlation Between Verizon Communications and Innovator

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

By analyzing existing cross correlation between Verizon Communications and Innovator SP 500, you can compare the effects of market volatilities on Verizon Communications and Innovator 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 Innovator. Check out your portfolio center. Please also check ongoing floating volatility patterns of Verizon Communications and Innovator.

Diversification Opportunities for Verizon Communications and Innovator

-0.52

Correlation Coefficient

Verizon Communications  Innovator

Excellent diversification

The 3 months correlation between Verizon and Innovator is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and Innovator SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovator SP 500 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 Innovator. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovator SP 500 has no effect on the direction of Verizon Communications i.e., Verizon Communications and Innovator go up and down completely randomly.

Pair Corralation between Verizon Communications and Innovator

Allowing for the 90-day total investment horizon Verizon Communications is expected to generate 2.85 times more return on investment than Innovator. However, Verizon Communications is 2.85 times more volatile than Innovator SP 500. It trades about 0.17 of its potential returns per unit of risk. Innovator SP 500 is currently generating about -0.04 per unit of risk. If you would invest  3,889  in Verizon Communications on December 28, 2024 and sell it today you would earn a total of  607.00  from holding Verizon Communications or generate 15.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Verizon Communications  vs.  Innovator SP 500

Verizon Communications

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Verizon Communications are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Verizon Communications showed solid returns over the last few months and may actually be approaching a breakup point.

Innovator SP 500

Risk-Adjusted Performance

Very Weak

Over the last 90 days Innovator SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Innovator is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Verizon Communications and Innovator

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

The idea behind Verizon Communications and Innovator SP 500 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.