Correlation Between Verizon Communications and T Mobile

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

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

Diversification Opportunities for Verizon Communications and T Mobile

0.65

Correlation Coefficient

Verizon Communications  T Mobile

Poor diversification

The 3 months correlation between Verizon and TMUS is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and T Mobile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on T Mobile 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 T Mobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of T Mobile has no effect on the direction of Verizon Communications i.e., Verizon Communications and T Mobile go up and down completely randomly.

Pair Corralation between Verizon Communications and T Mobile

Allowing for the 90-day total investment horizon Verizon Communications is expected to generate 2.92 times less return on investment than T Mobile. In addition to that, Verizon Communications is 1.16 times more volatile than T Mobile. It trades about 0.04 of its total potential returns per unit of risk. T Mobile is currently generating about 0.12 per unit of volatility. If you would invest  13,950  in T Mobile on November 19, 2024 and sell it today you would earn a total of  13,132  from holding T Mobile or generate 94.14% 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.  T Mobile

Verizon Communications

Risk-Adjusted Performance

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.

T Mobile

Risk-Adjusted Performance

Good

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

Pair Trading with Verizon Communications and T Mobile

The main advantage of trading using opposite Verizon Communications and T Mobile positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Verizon Communications position performs unexpectedly, T Mobile 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 T Mobile will offset losses from the drop in T Mobile's long position.

The idea behind Verizon Communications and T Mobile 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..