Correlation Between Verizon Communications and Telefnica
Can any of the company-specific risk be diversified away by investing in both Verizon Communications and Telefnica 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 Telefnica into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Verizon Communications and Telefnica SA, you can compare the effects of market volatilities on Verizon Communications and Telefnica 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 Telefnica. Check out your portfolio center. Please also check ongoing floating volatility patterns of Verizon Communications and Telefnica.
Diversification Opportunities for Verizon Communications and Telefnica
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Verizon and Telefnica is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and Telefnica SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefnica SA 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 Telefnica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telefnica SA has no effect on the direction of Verizon Communications i.e., Verizon Communications and Telefnica go up and down completely randomly.
Pair Corralation between Verizon Communications and Telefnica
Assuming the 90 days trading horizon Verizon Communications is expected to generate 0.86 times more return on investment than Telefnica. However, Verizon Communications is 1.16 times less risky than Telefnica. It trades about 0.2 of its potential returns per unit of risk. Telefnica SA is currently generating about -0.04 per unit of risk. If you would invest 3,966 in Verizon Communications on August 25, 2024 and sell it today you would earn a total of 217.00 from holding Verizon Communications or generate 5.47% 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. Telefnica SA
Performance |
| Timeline |
| Verizon Communications |
| Telefnica SA |
Verizon Communications and Telefnica Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Verizon Communications and Telefnica
The main advantage of trading using opposite Verizon Communications and Telefnica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Verizon Communications position performs unexpectedly, Telefnica 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 Telefnica will offset losses from the drop in Telefnica's long position.| Verizon Communications vs. Costco Wholesale | Verizon Communications vs. Bread Financial Holdings | Verizon Communications vs. Charter Communications | Verizon Communications vs. Bemobi Mobile Tech |
| Telefnica vs. SVB Financial Group | Telefnica vs. Capital One Financial | Telefnica vs. Ameriprise Financial | Telefnica vs. NXP Semiconductors NV |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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