Correlation Between Verizon Communications and Brickell Biotech

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

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

Diversification Opportunities for Verizon Communications and Brickell Biotech

-0.09

Correlation Coefficient

Verizon Communications  Brickell Biotech

Good diversification

The 3 months correlation between Verizon and Brickell is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and Brickell Biotech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brickell Biotech 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 Brickell Biotech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brickell Biotech has no effect on the direction of Verizon Communications i.e., Verizon Communications and Brickell Biotech go up and down completely randomly.

Pair Corralation between Verizon Communications and Brickell Biotech

Allowing for the 90-day total investment horizon Verizon Communications is expected to generate 3.54 times less return on investment than Brickell Biotech. But when comparing it to its historical volatility, Verizon Communications is 4.09 times less risky than Brickell Biotech. It trades about 0.06 of its potential returns per unit of risk. Brickell Biotech is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  62.00  in Brickell Biotech on January 19, 2024 and sell it today you would earn a total of  29.00  from holding Brickell Biotech or generate 46.77% return on investment over 90 days.

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

Verizon Communications  vs.  Brickell Biotech

Verizon Communications

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Verizon Communications are ranked lower than 3 (%) 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 recent stock price disturbance, may contribute to short-term losses for the investors.

Brickell Biotech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brickell Biotech has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental drivers, Brickell Biotech is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Verizon Communications and Brickell Biotech

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

The idea behind Verizon Communications and Brickell Biotech 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.