Correlation Between Verizon Communications and Cleveland Cliffs

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

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

Diversification Opportunities for Verizon Communications and Cleveland Cliffs

0.4

Correlation Coefficient

Verizon Communications  Cleveland Cliffs

Very weak diversification

The 3 months correlation between Verizon and Cleveland is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and Cleveland Cliffs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cleveland Cliffs 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 Cleveland Cliffs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cleveland Cliffs has no effect on the direction of Verizon Communications i.e., Verizon Communications and Cleveland Cliffs go up and down completely randomly.

Pair Corralation between Verizon Communications and Cleveland Cliffs

Assuming the 90 days horizon Verizon Communications is expected to generate 0.5 times more return on investment than Cleveland Cliffs. However, Verizon Communications is 1.99 times less risky than Cleveland Cliffs. It trades about -0.05 of its potential returns per unit of risk. Cleveland Cliffs is currently generating about -0.09 per unit of risk. If you would invest  87,317  in Verizon Communications on September 30, 2024 and sell it today you would lose (6,917) from holding Verizon Communications or give up 7.92% of portfolio value over 90 days.

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

Verizon Communications  vs.  Cleveland Cliffs

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.

Cleveland Cliffs

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cleveland Cliffs has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Verizon Communications and Cleveland Cliffs

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

The idea behind Verizon Communications and Cleveland Cliffs 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.