Correlation Between Verizon Communications and Gotham Defensive

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

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

Diversification Opportunities for Verizon Communications and Gotham Defensive

0.59

Correlation Coefficient

Verizon Communications  Gotham Defensive

Very weak diversification

The 3 months correlation between Verizon and Gotham is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and Gotham Defensive Long in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gotham Defensive Long 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 Gotham Defensive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gotham Defensive Long has no effect on the direction of Verizon Communications i.e., Verizon Communications and Gotham Defensive go up and down completely randomly.

Pair Corralation between Verizon Communications and Gotham Defensive

Allowing for the 90-day total investment horizon Verizon Communications is expected to generate 1.76 times less return on investment than Gotham Defensive. In addition to that, Verizon Communications is 1.91 times more volatile than Gotham Defensive Long. It trades about 0.03 of its total potential returns per unit of risk. Gotham Defensive Long is currently generating about 0.1 per unit of volatility. If you would invest  1,642  in Gotham Defensive Long on February 16, 2024 and sell it today you would earn a total of  56.00  from holding Gotham Defensive Long or generate 3.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Verizon Communications  vs.  Gotham Defensive Long

Verizon Communications

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Verizon Communications are ranked lower than 2 (%) 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 newest stock price disturbance, may contribute to short-term losses for the investors.

Gotham Defensive Long

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gotham Defensive Long are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Gotham Defensive 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 Gotham Defensive

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

The idea behind Verizon Communications and Gotham Defensive Long 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.