Correlation Between Nio Inc and Verizon Communications

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Can any of the company-specific risk be diversified away by investing in both Nio Inc 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 Nio Inc and Verizon Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nio Inc ADR and Verizon Communications, you can compare the effects of market volatilities on Nio Inc 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 Nio Inc with a short position of Verizon Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nio Inc and Verizon Communications.

Diversification Opportunities for Nio Inc and Verizon Communications

0.23
  Correlation Coefficient

Modest diversification

The 3 months correlation between Nio Inc and Verizon is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Nio Inc ADR and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications and Nio Inc 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 Nio Inc ADR 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 Nio Inc i.e., Nio Inc and Verizon Communications go up and down completely randomly.

Pair Corralation between Nio Inc and Verizon Communications

Considering the 90-day investment horizon Nio Inc ADR is expected to generate 1.55 times more return on investment than Verizon Communications. However, Nio Inc is 1.55 times more volatile than Verizon Communications. It trades about -0.16 of its potential returns per unit of risk. Verizon Communications is currently generating about -0.27 per unit of risk. If you would invest  2,260  in Nio Inc ADR on May 9, 2022 and sell it today you would lose (238.00)  from holding Nio Inc ADR or give up 10.53% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Nio Inc ADR  vs.  Verizon Communications

 Performance (%) 
       Timeline  
Nio Inc ADR 
Nio Inc Performance
11 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Nio Inc ADR are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady forward indicators, Nio Inc disclosed solid returns over the last few months and may actually be approaching a breakup point.

Nio Inc Price Channel

Verizon Communications 
Verizon Performance
0 of 100
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 latest stock price disturbance, may contribute to short-term losses for the investors.

Verizon Price Channel

Nio Inc and Verizon Communications Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Nio Inc and Verizon Communications

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

Nio Inc ADR

Pair trading matchups for Nio Inc

The idea behind Nio Inc ADR 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.

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