Correlation Between Intercontinental and Verizon Communications

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

By analyzing existing cross correlation between Intercontinental Exchange and Verizon Communications, you can compare the effects of market volatilities on Intercontinental 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 Intercontinental with a short position of Verizon Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Intercontinental and Verizon Communications.

Diversification Opportunities for Intercontinental and Verizon Communications

-0.28

Correlation Coefficient

Intercontinental  Verizon Communications

Very good diversification

The 3 months correlation between Intercontinental and Verizon is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Intercontinental Exchange and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications and Intercontinental 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 Intercontinental Exchange 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 Intercontinental i.e., Intercontinental and Verizon Communications go up and down completely randomly.

Pair Corralation between Intercontinental and Verizon Communications

Considering the 90-day investment horizon Intercontinental Exchange is expected to under-perform the Verizon Communications. But the stock apears to be less risky and, when comparing its historical volatility, Intercontinental Exchange is 1.83 times less risky than Verizon Communications. The stock trades about -0.14 of its potential returns per unit of risk. The Verizon Communications is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  4,022  in Verizon Communications on January 25, 2024 and sell it today you would lose (73.00) from holding Verizon Communications or give up 1.82% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Intercontinental Exchange  vs.  Verizon Communications

Intercontinental Exchange

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Intercontinental Exchange are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Intercontinental is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

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.

Pair Trading with Intercontinental and Verizon Communications

The main advantage of trading using opposite Intercontinental and Verizon Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Intercontinental 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 Intercontinental Exchange 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.

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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 Global Correlations module to find global opportunities by holding instruments from different markets.