Correlation Between Verizon Communications and Baltic Panamax

Can any of the company-specific risk be diversified away by investing in both Verizon Communications and Baltic Panamax 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 Baltic Panamax into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Verizon Communications and Baltic Panamax, you can compare the effects of market volatilities on Verizon Communications and Baltic Panamax 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 Baltic Panamax. Check out your portfolio center. Please also check ongoing floating volatility patterns of Verizon Communications and Baltic Panamax.

Diversification Opportunities for Verizon Communications and Baltic Panamax

0.52

Correlation Coefficient

Verizon Communications  Baltic Panamax

Very weak diversification

The 3 months correlation between Verizon and Baltic is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and Baltic Panamax in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baltic Panamax 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 Baltic Panamax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baltic Panamax has no effect on the direction of Verizon Communications i.e., Verizon Communications and Baltic Panamax go up and down completely randomly.

Pair Corralation between Verizon Communications and Baltic Panamax

Assuming the 90 days trading horizon Verizon Communications is expected to generate 0.58 times more return on investment than Baltic Panamax. However, Verizon Communications is 1.73 times less risky than Baltic Panamax. It trades about -0.46 of its potential returns per unit of risk. Baltic Panamax is currently generating about -0.31 per unit of risk. If you would invest  4,385  in Verizon Communications on September 24, 2024 and sell it today you would lose (385.00) from holding Verizon Communications or give up 8.78% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Verizon Communications  vs.  Baltic Panamax

Pair Trading with Verizon Communications and Baltic Panamax

The main advantage of trading using opposite Verizon Communications and Baltic Panamax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Verizon Communications position performs unexpectedly, Baltic Panamax 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 Baltic Panamax will offset losses from the drop in Baltic Panamax's long position.

The idea behind Verizon Communications and Baltic Panamax 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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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 Bonds Directory module to find actively traded corporate debentures issued by US companies.