Correlation Between Ambev SA and Verizon Communications

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

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

Diversification Opportunities for Ambev SA and Verizon Communications

0.18

Correlation Coefficient

Ambev SA  Verizon Communications

Average diversification

The 3 months correlation between Ambev and Verizon is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Ambev SA and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications and Ambev SA 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 Ambev SA 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 Ambev SA i.e., Ambev SA and Verizon Communications go up and down completely randomly.

Pair Corralation between Ambev SA and Verizon Communications

Assuming the 90 days trading horizon Ambev SA is expected to under-perform the Verizon Communications. In addition to that, Ambev SA is 2.02 times more volatile than Verizon Communications. It trades about -0.15 of its total potential returns per unit of risk. Verizon Communications is currently generating about -0.27 per unit of volatility. If you would invest  88,500  in Verizon Communications on September 26, 2024 and sell it today you would lose (8,000) from holding Verizon Communications or give up 9.04% of portfolio value over 90 days.

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

Ambev SA  vs.  Verizon Communications

Ambev SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ambev SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Verizon Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Verizon Communications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Ambev SA and Verizon Communications

The main advantage of trading using opposite Ambev SA and Verizon Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ambev SA 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 Ambev SA 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.