Correlation Between Knife River and Verizon Communications

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

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

Diversification Opportunities for Knife River and Verizon Communications

-0.11

Correlation Coefficient

Knife River  Verizon Communications

Good diversification

The 3 months correlation between Knife and Verizon is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Knife River and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications and Knife River 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 Knife River 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 Knife River i.e., Knife River and Verizon Communications go up and down completely randomly.

Pair Corralation between Knife River and Verizon Communications

Considering the 90-day investment horizon Knife River is expected to generate 1.16 times more return on investment than Verizon Communications. However, Knife River is 1.16 times more volatile than Verizon Communications. It trades about 0.01 of its potential returns per unit of risk. Verizon Communications is currently generating about -0.12 per unit of risk. If you would invest  7,912  in Knife River on January 31, 2024 and sell it today you would earn a total of  18.00  from holding Knife River or generate 0.23% return on investment over 90 days.

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

Knife River  vs.  Verizon Communications

Knife River

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Knife River are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Knife River reported solid returns over the last few months and may actually be approaching a breakup point.

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 Knife River and Verizon Communications

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

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.