Correlation Between MicroSectorsTM Oil and Verizon Communications
Can any of the company-specific risk be diversified away by investing in both MicroSectorsTM Oil and Verizon Communications 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 MicroSectorsTM Oil and Verizon Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MicroSectorsTM Oil Gas and Verizon Communications, you can compare the effects of market volatilities on MicroSectorsTM Oil and Verizon Communications 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 MicroSectorsTM Oil with a short position of Verizon Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectorsTM Oil and Verizon Communications.
Diversification Opportunities for MicroSectorsTM Oil and Verizon Communications
-0.17 | Correlation Coefficient |
Good diversification
The 3 months correlation between MicroSectorsTM and Verizon is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectorsTM Oil Gas and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications and MicroSectorsTM Oil 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 MicroSectorsTM Oil Gas are associated (or correlated) with Verizon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of MicroSectorsTM Oil i.e., MicroSectorsTM Oil and Verizon Communications go up and down completely randomly.
Pair Corralation between MicroSectorsTM Oil and Verizon Communications
Given the investment horizon of 90 days MicroSectorsTM Oil Gas is expected to under-perform the Verizon Communications. In addition to that, MicroSectorsTM Oil is 1.67 times more volatile than Verizon Communications. It trades about -0.15 of its total potential returns per unit of risk. Verizon Communications is currently generating about -0.03 per unit of volatility. If you would invest 4,022 in Verizon Communications on January 25, 2024 and sell it today you would lose (52.00) from holding Verizon Communications or give up 1.29% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
MicroSectorsTM Oil Gas vs. Verizon Communications
Performance |
| Timeline |
| MicroSectorsTM Oil Gas |
| Verizon Communications |
MicroSectorsTM Oil and Verizon Communications Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with MicroSectorsTM Oil and Verizon Communications
The main advantage of trading using opposite MicroSectorsTM Oil and Verizon Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MicroSectorsTM Oil position performs unexpectedly, Verizon Communications 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 Verizon Communications will offset losses from the drop in Verizon Communications' long position.The idea behind MicroSectorsTM Oil Gas and Verizon Communications 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.| Verizon Communications vs. T Mobile | Verizon Communications vs. Comcast Corp | Verizon Communications vs. Charter Communications | Verizon Communications vs. Vodafone Group PLC |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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