Correlation Between Verizon Communications and AbbVie
Can any of the company-specific risk be diversified away by investing in both Verizon Communications and AbbVie 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 AbbVie into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Verizon Communications and AbbVie Inc, you can compare the effects of market volatilities on Verizon Communications and AbbVie 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 AbbVie. Check out your portfolio center. Please also check ongoing floating volatility patterns of Verizon Communications and AbbVie.
Diversification Opportunities for Verizon Communications and AbbVie
-0.04 | Correlation Coefficient |
Good diversification
The 3 months correlation between Verizon and AbbVie is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and AbbVie Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AbbVie Inc 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 AbbVie. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AbbVie Inc has no effect on the direction of Verizon Communications i.e., Verizon Communications and AbbVie go up and down completely randomly.
Pair Corralation between Verizon Communications and AbbVie
Assuming the 90 days trading horizon Verizon Communications is expected to generate 2.09 times less return on investment than AbbVie. But when comparing it to its historical volatility, Verizon Communications is 1.14 times less risky than AbbVie. It trades about 0.03 of its potential returns per unit of risk. AbbVie Inc is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 4,352 in AbbVie Inc on October 25, 2024 and sell it today you would earn a total of 2,227 from holding AbbVie Inc or generate 51.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Verizon Communications vs. AbbVie Inc
Performance |
| Timeline |
| Verizon Communications |
| AbbVie Inc |
Verizon Communications and AbbVie Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Verizon Communications and AbbVie
The main advantage of trading using opposite Verizon Communications and AbbVie positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Verizon Communications position performs unexpectedly, AbbVie 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 AbbVie will offset losses from the drop in AbbVie's long position.The idea behind Verizon Communications and AbbVie Inc 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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