Correlation Between Verizon Communications and Level

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

By analyzing existing cross correlation between Verizon Communications and Level 3 Financing, you can compare the effects of market volatilities on Verizon Communications and Level 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 Level. Check out your portfolio center. Please also check ongoing floating volatility patterns of Verizon Communications and Level.

Diversification Opportunities for Verizon Communications and Level

-0.34

Correlation Coefficient

Verizon Communications  Level

Very good diversification

The 3 months correlation between Verizon and Level is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and Level 3 Financing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Level 3 Financing 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 Level. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Level 3 Financing has no effect on the direction of Verizon Communications i.e., Verizon Communications and Level go up and down completely randomly.

Pair Corralation between Verizon Communications and Level

Allowing for the 90-day total investment horizon Verizon Communications is expected to under-perform the Level. But the stock apears to be less risky and, when comparing its historical volatility, Verizon Communications is 29.52 times less risky than Level. The stock trades about -0.02 of its potential returns per unit of risk. The Level 3 Financing is currently generating about 0.4 of returns per unit of risk over similar time horizon. If you would invest  6,700  in Level 3 Financing on October 25, 2024 and sell it today you would earn a total of  1,796  from holding Level 3 Financing or generate 26.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	16.67%
Values	Daily Returns

Verizon Communications  vs.  Level 3 Financing

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 fairly strong basic indicators, Verizon Communications is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Level 3 Financing

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Level 3 Financing are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent basic indicators, Level sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Verizon Communications and Level

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

The idea behind Verizon Communications and Level 3 Financing 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.

Check out your portfolio center.

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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.