Correlation Between Verizon Communications and KINDER

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

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

Diversification Opportunities for Verizon Communications and KINDER

0.49

Correlation Coefficient

Verizon Communications  KINDER

Very weak diversification

The 3 months correlation between Verizon and KINDER is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and KINDER MORGAN ENERGY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KINDER MORGAN ENERGY 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 KINDER. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KINDER MORGAN ENERGY has no effect on the direction of Verizon Communications i.e., Verizon Communications and KINDER go up and down completely randomly.

Pair Corralation between Verizon Communications and KINDER

Allowing for the 90-day total investment horizon Verizon Communications is expected to under-perform the KINDER. But the stock apears to be less risky and, when comparing its historical volatility, Verizon Communications is 1.27 times less risky than KINDER. The stock trades about -0.31 of its potential returns per unit of risk. The KINDER MORGAN ENERGY is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  10,957  in KINDER MORGAN ENERGY on October 5, 2024 and sell it today you would lose (47.00) from holding KINDER MORGAN ENERGY or give up 0.43% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	85.0%
Values	Daily Returns

Verizon Communications  vs.  KINDER MORGAN ENERGY

Verizon Communications

Risk-Adjusted Performance

0 of 100

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 latest uncertain performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

KINDER MORGAN ENERGY

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in KINDER MORGAN ENERGY are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, KINDER 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 KINDER

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

The idea behind Verizon Communications and KINDER MORGAN ENERGY 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.