Correlation Between Verizon Communications and Micron Technology

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

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

Diversification Opportunities for Verizon Communications and Micron Technology

0.18

Correlation Coefficient

Verizon Communications  Micron Technology

Average diversification

The 3 months correlation between Verizon and Micron is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and Micron Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Micron Technology 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 Micron Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Micron Technology has no effect on the direction of Verizon Communications i.e., Verizon Communications and Micron Technology go up and down completely randomly.

Pair Corralation between Verizon Communications and Micron Technology

Assuming the 90 days horizon Verizon Communications is expected to generate 1.52 times less return on investment than Micron Technology. But when comparing it to its historical volatility, Verizon Communications is 1.57 times less risky than Micron Technology. It trades about 0.08 of its potential returns per unit of risk. Micron Technology is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  177,414  in Micron Technology on September 5, 2024 and sell it today you would earn a total of  25,386  from holding Micron Technology or generate 14.31% return on investment over 90 days.

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

Verizon Communications  vs.  Micron Technology

Verizon Communications

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Verizon Communications are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Verizon Communications may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Micron Technology

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Micron Technology are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Micron Technology showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Verizon Communications and Micron Technology

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

The idea behind Verizon Communications and Micron Technology 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.