Correlation Between Verizon Communications and Bread Financial
Can any of the company-specific risk be diversified away by investing in both Verizon Communications and Bread Financial 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 Bread Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Verizon Communications and Bread Financial Holdings, you can compare the effects of market volatilities on Verizon Communications and Bread Financial 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 Bread Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Verizon Communications and Bread Financial.
Diversification Opportunities for Verizon Communications and Bread Financial
0.26 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Verizon and Bread is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and Bread Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bread Financial Holdings 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 Bread Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bread Financial Holdings has no effect on the direction of Verizon Communications i.e., Verizon Communications and Bread Financial go up and down completely randomly.
Pair Corralation between Verizon Communications and Bread Financial
Assuming the 90 days trading horizon Verizon Communications is expected to under-perform the Bread Financial. But the stock apears to be less risky and, when comparing its historical volatility, Verizon Communications is 2.08 times less risky than Bread Financial. The stock trades about 0.0 of its potential returns per unit of risk. The Bread Financial Holdings is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 8,120 in Bread Financial Holdings on November 2, 2024 and sell it today you would earn a total of 1,394 from holding Bread Financial Holdings or generate 17.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Verizon Communications vs. Bread Financial Holdings
Performance |
| Timeline |
| Verizon Communications |
| Bread Financial Holdings |
Verizon Communications and Bread Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Verizon Communications and Bread Financial
The main advantage of trading using opposite Verizon Communications and Bread Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Verizon Communications position performs unexpectedly, Bread Financial 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 Bread Financial will offset losses from the drop in Bread Financial's long position.The idea behind Verizon Communications and Bread Financial Holdings 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.
| Bread Financial vs. Universal Health Services, | Bread Financial vs. Martin Marietta Materials, | Bread Financial vs. Taiwan Semiconductor Manufacturing | Bread Financial vs. Hospital Mater Dei |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
Other Complementary Tools
| Watchlist Optimization Optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm | |
| Price Transformation Use Price Transformation models to analyze the depth of different equity instruments across global markets | |
| Portfolio Optimization Compute new portfolio that will generate highest expected return given your specified tolerance for risk | |
| Risk-Return Analysis View associations between returns expected from investment and the risk you assume | |
| Global Correlations Find global opportunities by holding instruments from different markets |