Correlation Between Verizon Communications and BT Group
Can any of the company-specific risk be diversified away by investing in both Verizon Communications and BT Group 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 BT Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Verizon Communications and BT Group plc, you can compare the effects of market volatilities on Verizon Communications and BT Group 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 BT Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Verizon Communications and BT Group.
Diversification Opportunities for Verizon Communications and BT Group
0.02 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Verizon and BTGOF is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and BT Group plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BT Group plc 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 BT Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BT Group plc has no effect on the direction of Verizon Communications i.e., Verizon Communications and BT Group go up and down completely randomly.
Pair Corralation between Verizon Communications and BT Group
Allowing for the 90-day total investment horizon Verizon Communications is expected to generate 4.12 times less return on investment than BT Group. But when comparing it to its historical volatility, Verizon Communications is 3.57 times less risky than BT Group. It trades about 0.22 of its potential returns per unit of risk. BT Group plc is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 134.00 in BT Group plc on March 5, 2024 and sell it today you would earn a total of 26.00 from holding BT Group plc or generate 19.4% 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. BT Group plc
Performance |
Timeline |
Verizon Communications |
BT Group plc |
Verizon Communications and BT Group Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Verizon Communications and BT Group
The main advantage of trading using opposite Verizon Communications and BT Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Verizon Communications position performs unexpectedly, BT Group 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 BT Group will offset losses from the drop in BT Group's long position.Verizon Communications vs. T Mobile | Verizon Communications vs. Comcast Corp | Verizon Communications vs. Charter Communications | Verizon Communications vs. Vodafone Group PLC |
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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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