Correlation Between Bread Financial and Verizon Communications

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

By analyzing existing cross correlation between Bread Financial Holdings and Verizon Communications, you can compare the effects of market volatilities on Bread Financial and Verizon Communications 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 Bread Financial with a short position of Verizon Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bread Financial and Verizon Communications.

Diversification Opportunities for Bread Financial and Verizon Communications

0.06

Correlation Coefficient

Bread Financial  Verizon Communications

Significant diversification

The 3 months correlation between Bread and Verizon is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Bread Financial Holdings and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications and Bread Financial 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 Bread Financial Holdings are associated (or correlated) with Verizon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of Bread Financial i.e., Bread Financial and Verizon Communications go up and down completely randomly.

Pair Corralation between Bread Financial and Verizon Communications

Assuming the 90 days trading horizon Bread Financial is expected to generate 1.23 times less return on investment than Verizon Communications. In addition to that, Bread Financial is 2.31 times more volatile than Verizon Communications. It trades about 0.05 of its total potential returns per unit of risk. Verizon Communications is currently generating about 0.14 per unit of volatility. If you would invest  3,859  in Verizon Communications on September 2, 2024 and sell it today you would earn a total of  560.00  from holding Verizon Communications or generate 14.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Bread Financial Holdings  vs.  Verizon Communications

Bread Financial Holdings

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bread Financial Holdings are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain essential indicators, Bread Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Verizon Communications

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Verizon Communications are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Verizon Communications sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bread Financial and Verizon Communications

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

The idea behind Bread Financial Holdings and Verizon Communications 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.