Correlation Between Consolidated Communications and Bank of America
Can any of the company-specific risk be diversified away by investing in both Consolidated Communications and Bank of America 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 Consolidated Communications and Bank of America into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Consolidated Communications Holdings and Verizon Communications, you can compare the effects of market volatilities on Consolidated Communications and Bank of America 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 Consolidated Communications with a short position of Bank of America. Check out your portfolio center. Please also check ongoing floating volatility patterns of Consolidated Communications and Bank of America.
Diversification Opportunities for Consolidated Communications and Bank of America
0.54 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Consolidated and Bank is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Consolidated Communications Ho and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications and Consolidated 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 Consolidated Communications Holdings are associated (or correlated) with Bank of America. 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 Consolidated Communications i.e., Consolidated Communications and Bank of America go up and down completely randomly.
Pair Corralation between Consolidated Communications and Bank of America
Assuming the 90 days horizon Consolidated Communications is expected to generate 1.22 times less return on investment than Bank of America. But when comparing it to its historical volatility, Consolidated Communications Holdings is 1.8 times less risky than Bank of America. It trades about 0.25 of its potential returns per unit of risk. Verizon Communications is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 3,880 in Verizon Communications on September 15, 2024 and sell it today you would earn a total of 150.00 from holding Verizon Communications or generate 3.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Consolidated Communications Ho vs. Verizon Communications
Performance |
| Timeline |
| Consolidated Communications |
| Verizon Communications |
Consolidated Communications and Bank of America Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Consolidated Communications and Bank of America
The main advantage of trading using opposite Consolidated Communications and Bank of America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Consolidated Communications position performs unexpectedly, Bank of America 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 Bank of America will offset losses from the drop in Bank of America's long position.The idea behind Consolidated Communications Holdings 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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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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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