Correlation Between American Nortel and Verizon Communications

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

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

Diversification Opportunities for American Nortel and Verizon Communications

0.28

Correlation Coefficient

American Nortel  Verizon Communications

Modest diversification

The 3 months correlation between American and Verizon is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding American Nortel Communications and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications and American Nortel 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 American Nortel Communications 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 American Nortel i.e., American Nortel and Verizon Communications go up and down completely randomly.

Pair Corralation between American Nortel and Verizon Communications

Given the investment horizon of 90 days American Nortel Communications is expected to generate 3.15 times more return on investment than Verizon Communications. However, American Nortel is 3.15 times more volatile than Verizon Communications. It trades about 0.03 of its potential returns per unit of risk. Verizon Communications is currently generating about 0.06 per unit of risk. If you would invest  2.40  in American Nortel Communications on September 2, 2024 and sell it today you would earn a total of  0.04  from holding American Nortel Communications or generate 1.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

American Nortel Communications  vs.  Verizon Communications

American Nortel Comm

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Nortel Communications are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, American Nortel may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Verizon Communications

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Verizon Communications are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Verizon Communications is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with American Nortel and Verizon Communications

The main advantage of trading using opposite American Nortel and Verizon Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Nortel 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 American Nortel Communications 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.