Correlation Between Verizon Communications and BAE Systems
Can any of the company-specific risk be diversified away by investing in both Verizon Communications and BAE Systems 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 BAE Systems into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Verizon Communications and BAE Systems PLC, you can compare the effects of market volatilities on Verizon Communications and BAE Systems 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 BAE Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of Verizon Communications and BAE Systems.
Diversification Opportunities for Verizon Communications and BAE Systems
-0.35 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Verizon and BAE is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and BAE Systems PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BAE Systems PLC 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 BAE Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BAE Systems PLC has no effect on the direction of Verizon Communications i.e., Verizon Communications and BAE Systems go up and down completely randomly.
Pair Corralation between Verizon Communications and BAE Systems
Allowing for the 90-day total investment horizon Verizon Communications is expected to generate 0.53 times more return on investment than BAE Systems. However, Verizon Communications is 1.87 times less risky than BAE Systems. It trades about 0.26 of its potential returns per unit of risk. BAE Systems PLC is currently generating about -0.06 per unit of risk. If you would invest 4,162 in Verizon Communications on August 28, 2024 and sell it today you would earn a total of 275.00 from holding Verizon Communications or generate 6.61% 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. BAE Systems PLC
Performance |
| Timeline |
| Verizon Communications |
| BAE Systems PLC |
Verizon Communications and BAE Systems Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Verizon Communications and BAE Systems
The main advantage of trading using opposite Verizon Communications and BAE Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Verizon Communications position performs unexpectedly, BAE Systems 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 BAE Systems will offset losses from the drop in BAE Systems' long position.The idea behind Verizon Communications and BAE Systems PLC 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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