Correlation Between Verizon Communications and New Stratus
Can any of the company-specific risk be diversified away by investing in both Verizon Communications and New Stratus 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 New Stratus into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Verizon Communications CDR and New Stratus Energy, you can compare the effects of market volatilities on Verizon Communications and New Stratus 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 New Stratus. Check out your portfolio center. Please also check ongoing floating volatility patterns of Verizon Communications and New Stratus.
Diversification Opportunities for Verizon Communications and New Stratus
-0.26 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Verizon and New is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications CDR and New Stratus Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Stratus 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 CDR are associated (or correlated) with New Stratus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Stratus Energy has no effect on the direction of Verizon Communications i.e., Verizon Communications and New Stratus go up and down completely randomly.
Pair Corralation between Verizon Communications and New Stratus
Assuming the 90 days trading horizon Verizon Communications is expected to generate 7.35 times less return on investment than New Stratus. But when comparing it to its historical volatility, Verizon Communications CDR is 7.21 times less risky than New Stratus. It trades about 0.25 of its potential returns per unit of risk. New Stratus Energy is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 46.00 in New Stratus Energy on August 29, 2024 and sell it today you would earn a total of 22.00 from holding New Stratus Energy or generate 47.83% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Verizon Communications CDR vs. New Stratus Energy
Performance |
| Timeline |
| Verizon Communications |
| New Stratus Energy |
Verizon Communications and New Stratus Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Verizon Communications and New Stratus
The main advantage of trading using opposite Verizon Communications and New Stratus positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Verizon Communications position performs unexpectedly, New Stratus 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 New Stratus will offset losses from the drop in New Stratus' long position.| Verizon Communications vs. Royal Helium | Verizon Communications vs. Excelsior Mining Corp | Verizon Communications vs. Vista Gold | Verizon Communications vs. TeraGo Inc |
| New Stratus vs. Arrow Exploration Corp | New Stratus vs. Southern Energy Corp | New Stratus vs. TAG Oil | New Stratus vs. Hemisphere Energy |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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