Correlation Between Verizon Communications and Phillips
Can any of the company-specific risk be diversified away by investing in both Verizon Communications and Phillips 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 Phillips into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Verizon Communications and Phillips 66, you can compare the effects of market volatilities on Verizon Communications and Phillips 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 Phillips. Check out your portfolio center. Please also check ongoing floating volatility patterns of Verizon Communications and Phillips.
Diversification Opportunities for Verizon Communications and Phillips
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Verizon and Phillips is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and Phillips 66 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Phillips 66 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 Phillips. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Phillips 66 has no effect on the direction of Verizon Communications i.e., Verizon Communications and Phillips go up and down completely randomly.
Pair Corralation between Verizon Communications and Phillips
Assuming the 90 days trading horizon Verizon Communications is expected to generate 1.04 times less return on investment than Phillips. But when comparing it to its historical volatility, Verizon Communications is 1.02 times less risky than Phillips. It trades about 0.24 of its potential returns per unit of risk. Phillips 66 is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 35,933 in Phillips 66 on September 13, 2024 and sell it today you would earn a total of 2,905 from holding Phillips 66 or generate 8.08% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Verizon Communications vs. Phillips 66
Performance |
| Timeline |
| Verizon Communications |
| Phillips 66 |
Verizon Communications and Phillips Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Verizon Communications and Phillips
The main advantage of trading using opposite Verizon Communications and Phillips positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Verizon Communications position performs unexpectedly, Phillips 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 Phillips will offset losses from the drop in Phillips' long position.| Verizon Communications vs. T Mobile | Verizon Communications vs. Vodafone Group Public | Verizon Communications vs. Fundo Investimento Imobiliario | Verizon Communications vs. LESTE FDO INV |
| Phillips vs. Take Two Interactive Software | Phillips vs. Paycom Software | Phillips vs. Waste Management | Phillips vs. Charter Communications |
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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