Correlation Between T Mobile and Verizon Communications

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

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

Diversification Opportunities for T Mobile and Verizon Communications

-0.3

Correlation Coefficient

T Mobile  Verizon Communications

Very good diversification

The 3 months correlation between TMUS and Verizon is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding T Mobile and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications and T Mobile 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 T Mobile are associated (or correlated) with Verizon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of T Mobile i.e., T Mobile and Verizon Communications go up and down completely randomly.

Pair Corralation between T Mobile and Verizon Communications

Given the investment horizon of 90 days T Mobile is expected to generate 0.87 times more return on investment than Verizon Communications. However, T Mobile is 1.15 times less risky than Verizon Communications. It trades about 0.05 of its potential returns per unit of risk. Verizon Communications is currently generating about -0.01 per unit of risk. If you would invest  12,550  in T Mobile on February 5, 2024 and sell it today you would earn a total of  3,910  from holding T Mobile or generate 31.16% return on investment over 90 days.

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

T Mobile  vs.  Verizon Communications

T Mobile

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in T Mobile are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, T Mobile is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

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 fairly strong basic indicators, Verizon Communications is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with T Mobile and Verizon Communications

The main advantage of trading using opposite T Mobile and Verizon Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if T Mobile position performs unexpectedly, Verizon Communications 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 Verizon Communications will offset losses from the drop in Verizon Communications' long position.

The idea behind T Mobile and Verizon Communications 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.