Correlation Between Exxon and Verizon Communications

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

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

Diversification Opportunities for Exxon and Verizon Communications

0.31

Correlation Coefficient

Exxon  Verizon Communications

Weak diversification

The 3 months correlation between Exxon and Verizon is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications and Exxon 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 Exxon Mobil Corp 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 Exxon i.e., Exxon and Verizon Communications go up and down completely randomly.

Pair Corralation between Exxon and Verizon Communications

Considering the 90-day investment horizon Exxon Mobil Corp is expected to generate 1.08 times more return on investment than Verizon Communications. However, Exxon is 1.08 times more volatile than Verizon Communications. It trades about 0.07 of its potential returns per unit of risk. Verizon Communications is currently generating about 0.03 per unit of risk. If you would invest  7,980  in Exxon Mobil Corp on January 19, 2024 and sell it today you would earn a total of  3,872  from holding Exxon Mobil Corp or generate 48.52% return on investment over 90 days.

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

Exxon Mobil Corp  vs.  Verizon Communications

Exxon Mobil Corp

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil Corp are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Exxon displayed solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Exxon and Verizon Communications

The main advantage of trading using opposite Exxon and Verizon Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exxon 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 Exxon Mobil Corp 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.