Correlation Between British American and Verizon Communications
Can any of the company-specific risk be diversified away by investing in both British American 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 British American and Verizon Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between British American Tobacco and Verizon Communications, you can compare the effects of market volatilities on British American 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 British American with a short position of Verizon Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of British American and Verizon Communications.
Diversification Opportunities for British American and Verizon Communications
0.38 | Correlation Coefficient |
Weak diversification
The 3 months correlation between British and Verizon is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications and British American 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 British American Tobacco 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 British American i.e., British American and Verizon Communications go up and down completely randomly.
Pair Corralation between British American and Verizon Communications
Assuming the 90 days trading horizon British American is expected to generate 1.13 times less return on investment than Verizon Communications. In addition to that, British American is 1.02 times more volatile than Verizon Communications. It trades about 0.06 of its total potential returns per unit of risk. Verizon Communications is currently generating about 0.08 per unit of volatility. If you would invest 2,910 in Verizon Communications on August 31, 2024 and sell it today you would earn a total of 1,553 from holding Verizon Communications or generate 53.37% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.75% |
| Values | Daily Returns |
British American Tobacco vs. Verizon Communications
Performance |
| Timeline |
| British American Tobacco |
| Verizon Communications |
British American and Verizon Communications Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with British American and Verizon Communications
The main advantage of trading using opposite British American and Verizon Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if British American 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.| British American vs. Fras le SA | British American vs. Energisa SA | British American vs. Clave Indices De | British American vs. BTG Pactual Logstica |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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