Correlation Between Verizon Communications and NYSE Composite

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

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

Diversification Opportunities for Verizon Communications and NYSE Composite

0.79

Correlation Coefficient

Verizon Communications NYSE Composite

Poor diversification

The 3 months correlation between Verizon and NYSE Composite is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and NYSE Composite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NYSE Composite 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 NYSE Composite. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NYSE Composite has no effect on the direction of Verizon Communications i.e., Verizon Communications and NYSE Composite go up and down completely randomly.

Pair Corralation between Verizon Communications and NYSE Composite

Allowing for the 90-day total investment horizon Verizon Communications is expected to generate 0.9 times more return on investment than NYSE Composite. However, Verizon Communications is 1.11 times less risky than NYSE Composite. It trades about -0.34 of its potential returns per unit of risk. NYSE Composite is currently generating about -0.31 per unit of risk. If you would invest  3,920  in Verizon Communications on December 20, 2022 and sell it today you would lose (241.00)  from holding Verizon Communications or give up 6.15% of portfolio value over 90 days.

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

Verizon Communications  vs.  NYSE Composite

Pair Trading with Verizon Communications and NYSE Composite

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

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The idea behind Verizon Communications and NYSE Composite 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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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 Analyst Recommendations module to analyst recommendations and target price estimates broken down by several categories.