Correlation Between Verizon Communications and Telefnica Brasil

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

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

Diversification Opportunities for Verizon Communications and Telefnica Brasil

-0.58

Correlation Coefficient

Verizon Communications  Telefnica Brasil

Excellent diversification

The 3 months correlation between Verizon and Telefnica is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and Telefnica Brasil SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefnica Brasil 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 Telefnica Brasil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telefnica Brasil has no effect on the direction of Verizon Communications i.e., Verizon Communications and Telefnica Brasil go up and down completely randomly.

Pair Corralation between Verizon Communications and Telefnica Brasil

Assuming the 90 days trading horizon Verizon Communications is expected to generate 1.11 times more return on investment than Telefnica Brasil. However, Verizon Communications is 1.11 times more volatile than Telefnica Brasil SA. It trades about 0.05 of its potential returns per unit of risk. Telefnica Brasil SA is currently generating about -0.05 per unit of risk. If you would invest  4,063  in Verizon Communications on September 13, 2024 and sell it today you would earn a total of  153.00  from holding Verizon Communications or generate 3.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Verizon Communications  vs.  Telefnica Brasil SA

Verizon Communications

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Verizon Communications are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Verizon Communications is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Telefnica Brasil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Telefnica Brasil SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Telefnica Brasil is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Verizon Communications and Telefnica Brasil

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

The idea behind Verizon Communications and Telefnica Brasil SA 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.