Correlation Between Verizon Communications and Hennessy Small
Can any of the company-specific risk be diversified away by investing in both Verizon Communications and Hennessy Small 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 Hennessy Small into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Verizon Communications and Hennessy Small Cap, you can compare the effects of market volatilities on Verizon Communications and Hennessy Small 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 Hennessy Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Verizon Communications and Hennessy Small.
Diversification Opportunities for Verizon Communications and Hennessy Small
-0.37 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Verizon and Hennessy is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and Hennessy Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hennessy Small Cap 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 Hennessy Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hennessy Small Cap has no effect on the direction of Verizon Communications i.e., Verizon Communications and Hennessy Small go up and down completely randomly.
Pair Corralation between Verizon Communications and Hennessy Small
Allowing for the 90-day total investment horizon Verizon Communications is expected to under-perform the Hennessy Small. But the stock apears to be less risky and, when comparing its historical volatility, Verizon Communications is 2.68 times less risky than Hennessy Small. The stock trades about -0.03 of its potential returns per unit of risk. The Hennessy Small Cap is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 1,588 in Hennessy Small Cap on August 24, 2024 and sell it today you would earn a total of 176.00 from holding Hennessy Small Cap or generate 11.08% 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. Hennessy Small Cap
Performance |
| Timeline |
| Verizon Communications |
| Hennessy Small Cap |
Verizon Communications and Hennessy Small Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Verizon Communications and Hennessy Small
The main advantage of trading using opposite Verizon Communications and Hennessy Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Verizon Communications position performs unexpectedly, Hennessy Small 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 Hennessy Small will offset losses from the drop in Hennessy Small's long position.| Verizon Communications vs. T Mobile | Verizon Communications vs. Lumen Technologies | Verizon Communications vs. Comcast Corp | Verizon Communications vs. ATT Inc |
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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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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