Correlation Between Verizon Communications and NextEra Energy
Can any of the company-specific risk be diversified away by investing in both Verizon Communications and NextEra Energy 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 NextEra Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Verizon Communications and NextEra Energy, you can compare the effects of market volatilities on Verizon Communications and NextEra Energy 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 NextEra Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Verizon Communications and NextEra Energy.
Diversification Opportunities for Verizon Communications and NextEra Energy
0.37 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Verizon and NextEra is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and NextEra Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NextEra Energy 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 NextEra Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NextEra Energy has no effect on the direction of Verizon Communications i.e., Verizon Communications and NextEra Energy go up and down completely randomly.
Pair Corralation between Verizon Communications and NextEra Energy
Assuming the 90 days trading horizon Verizon Communications is expected to generate 0.84 times more return on investment than NextEra Energy. However, Verizon Communications is 1.19 times less risky than NextEra Energy. It trades about 0.05 of its potential returns per unit of risk. NextEra Energy is currently generating about 0.02 per unit of risk. If you would invest 3,060 in Verizon Communications on September 3, 2024 and sell it today you would earn a total of 1,359 from holding Verizon Communications or generate 44.41% 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. NextEra Energy
Performance |
| Timeline |
| Verizon Communications |
| NextEra Energy |
Verizon Communications and NextEra Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Verizon Communications and NextEra Energy
The main advantage of trading using opposite Verizon Communications and NextEra Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Verizon Communications position performs unexpectedly, NextEra Energy 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 NextEra Energy will offset losses from the drop in NextEra Energy's long position.| Verizon Communications vs. T Mobile | Verizon Communications vs. Telefnica Brasil SA | Verizon Communications vs. TIM SA | Verizon Communications vs. Oi SA |
| NextEra Energy vs. Bio Techne | NextEra Energy vs. BIONTECH SE DRN | NextEra Energy vs. Agilent Technologies | NextEra Energy vs. T Mobile |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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