Correlation Between Verizon Communications and AMERICAN

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

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

Diversification Opportunities for Verizon Communications and AMERICAN

-0.36

Correlation Coefficient

Verizon Communications  AMERICAN

Very good diversification

The 3 months correlation between Verizon and AMERICAN is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and AMERICAN TOWER P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AMERICAN TOWER P 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 AMERICAN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AMERICAN TOWER P has no effect on the direction of Verizon Communications i.e., Verizon Communications and AMERICAN go up and down completely randomly.

Pair Corralation between Verizon Communications and AMERICAN

Allowing for the 90-day total investment horizon Verizon Communications is expected to generate 6.11 times more return on investment than AMERICAN. However, Verizon Communications is 6.11 times more volatile than AMERICAN TOWER P. It trades about 0.14 of its potential returns per unit of risk. AMERICAN TOWER P is currently generating about -0.08 per unit of risk. If you would invest  3,909  in Verizon Communications on December 24, 2024 and sell it today you would earn a total of  490.00  from holding Verizon Communications or generate 12.54% 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.  AMERICAN TOWER P

Verizon Communications

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Verizon Communications are ranked lower than 10 (%) 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.

AMERICAN TOWER P

Risk-Adjusted Performance

Very Weak

Over the last 90 days AMERICAN TOWER P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, AMERICAN is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Verizon Communications and AMERICAN

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

The idea behind Verizon Communications and AMERICAN TOWER P 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.