Correlation Between Verizon Communications and NATIONAL

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

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

Diversification Opportunities for Verizon Communications and NATIONAL

-0.32

Correlation Coefficient

Verizon Communications  NATIONAL

Very good diversification

The 3 months correlation between Verizon and NATIONAL is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and NATIONAL AUSTRALIA BK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NATIONAL AUSTRALIA 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 NATIONAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NATIONAL AUSTRALIA has no effect on the direction of Verizon Communications i.e., Verizon Communications and NATIONAL go up and down completely randomly.

Pair Corralation between Verizon Communications and NATIONAL

Allowing for the 90-day total investment horizon Verizon Communications is expected to under-perform the NATIONAL. In addition to that, Verizon Communications is 3.51 times more volatile than NATIONAL AUSTRALIA BK. It trades about -0.08 of its total potential returns per unit of risk. NATIONAL AUSTRALIA BK is currently generating about -0.2 per unit of volatility. If you would invest  9,919  in NATIONAL AUSTRALIA BK on September 19, 2024 and sell it today you would lose (233.00) from holding NATIONAL AUSTRALIA BK or give up 2.35% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	50.0%
Values	Daily Returns

Verizon Communications  vs.  NATIONAL AUSTRALIA BK

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 uncertain performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

NATIONAL AUSTRALIA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NATIONAL AUSTRALIA BK has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, NATIONAL is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Verizon Communications and NATIONAL

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

The idea behind Verizon Communications and NATIONAL AUSTRALIA BK 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.