Correlation Between Lumen Technologies and Verizon Communications

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

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

Diversification Opportunities for Lumen Technologies and Verizon Communications

-0.49

Correlation Coefficient

Lumen Technologies  Verizon Communications

Very good diversification

The 3 months correlation between Lumen and Verizon is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Lumen Technologies and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications and Lumen Technologies 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 Lumen Technologies 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 Lumen Technologies i.e., Lumen Technologies and Verizon Communications go up and down completely randomly.

Pair Corralation between Lumen Technologies and Verizon Communications

Given the investment horizon of 90 days Lumen Technologies is expected to under-perform the Verizon Communications. In addition to that, Lumen Technologies is 2.35 times more volatile than Verizon Communications. It trades about -0.23 of its total potential returns per unit of risk. Verizon Communications is currently generating about -0.05 per unit of volatility. If you would invest  4,020  in Verizon Communications on January 26, 2024 and sell it today you would lose (71.00) from holding Verizon Communications or give up 1.77% of portfolio value over 90 days.

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

Lumen Technologies  vs.  Verizon Communications

Lumen Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lumen Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Lumen Technologies is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

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 Lumen Technologies and Verizon Communications

The main advantage of trading using opposite Lumen Technologies and Verizon Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lumen Technologies 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 Lumen Technologies 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..