Correlation Between Verizon Communications and GP Investments

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

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

Diversification Opportunities for Verizon Communications and GP Investments

-0.08

Correlation Coefficient

Verizon Communications  GP Investments

Good diversification

The 3 months correlation between Verizon and GPIV33 is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and GP Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GP Investments 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 GP Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GP Investments has no effect on the direction of Verizon Communications i.e., Verizon Communications and GP Investments go up and down completely randomly.

Pair Corralation between Verizon Communications and GP Investments

Assuming the 90 days trading horizon Verizon Communications is expected to generate 0.38 times more return on investment than GP Investments. However, Verizon Communications is 2.65 times less risky than GP Investments. It trades about 0.16 of its potential returns per unit of risk. GP Investments is currently generating about 0.02 per unit of risk. If you would invest  3,859  in Verizon Communications on August 31, 2024 and sell it today you would earn a total of  604.00  from holding Verizon Communications or generate 15.65% 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.  GP Investments

Verizon Communications

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Verizon Communications are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Verizon Communications sustained solid returns over the last few months and may actually be approaching a breakup point.

GP Investments

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in GP Investments are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong forward indicators, GP Investments is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Verizon Communications and GP Investments

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

The idea behind Verizon Communications and GP Investments 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.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.