Correlation Between Verizon Communications and China Tontine

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

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

Diversification Opportunities for Verizon Communications and China Tontine

-0.38

Correlation Coefficient

Verizon Communications  China Tontine

Very good diversification

The 3 months correlation between Verizon and China is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and China Tontine Wines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Tontine Wines 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 China Tontine. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Tontine Wines has no effect on the direction of Verizon Communications i.e., Verizon Communications and China Tontine go up and down completely randomly.

Pair Corralation between Verizon Communications and China Tontine

Allowing for the 90-day total investment horizon Verizon Communications is expected to under-perform the China Tontine. But the stock apears to be less risky and, when comparing its historical volatility, Verizon Communications is 33.89 times less risky than China Tontine. The stock trades about 0.0 of its potential returns per unit of risk. The China Tontine Wines is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  3.30  in China Tontine Wines on February 24, 2024 and sell it today you would earn a total of  0.00  from holding China Tontine Wines or generate 0.0% 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.  China Tontine Wines

Verizon Communications

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Verizon Communications are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Verizon Communications is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

China Tontine Wines

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Tontine Wines are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Tontine reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Verizon Communications and China Tontine

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

The idea behind Verizon Communications and China Tontine Wines 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 Global Correlations module to find global opportunities by holding instruments from different markets.