Correlation Between State Street and Verizon Communications
Can any of the company-specific risk be diversified away by investing in both State Street 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 State Street and Verizon Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between State Street and Verizon Communications, you can compare the effects of market volatilities on State Street 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 State Street with a short position of Verizon Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of State Street and Verizon Communications.
Diversification Opportunities for State Street and Verizon Communications
0.05 | Correlation Coefficient |
Significant diversification
The 3 months correlation between State and Verizon is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding State Street and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications and State Street 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 State Street 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 State Street i.e., State Street and Verizon Communications go up and down completely randomly.
Pair Corralation between State Street and Verizon Communications
Assuming the 90 days trading horizon State Street is expected to generate 1.03 times more return on investment than Verizon Communications. However, State Street is 1.03 times more volatile than Verizon Communications. It trades about 0.17 of its potential returns per unit of risk. Verizon Communications is currently generating about 0.05 per unit of risk. If you would invest 126,468 in State Street on October 13, 2024 and sell it today you would earn a total of 73,953 from holding State Street or generate 58.48% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
State Street vs. Verizon Communications
Performance |
| Timeline |
| State Street |
| Verizon Communications |
State Street and Verizon Communications Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with State Street and Verizon Communications
The main advantage of trading using opposite State Street and Verizon Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if State Street 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.| State Street vs. Verizon Communications | State Street vs. Costco Wholesale | State Street vs. McEwen Mining | State Street vs. First Majestic Silver |
| Verizon Communications vs. UnitedHealth Group Incorporated | Verizon Communications vs. Hoteles City Express | Verizon Communications vs. McEwen Mining | Verizon Communications vs. CVS Health |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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