Correlation Between Verizon Communications and Textron

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

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

Diversification Opportunities for Verizon Communications and Textron

-0.67

Correlation Coefficient

Verizon Communications  Textron

Excellent diversification

The 3 months correlation between Verizon and Textron is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and Textron in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Textron 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 Textron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Textron has no effect on the direction of Verizon Communications i.e., Verizon Communications and Textron go up and down completely randomly.

Pair Corralation between Verizon Communications and Textron

Assuming the 90 days horizon Verizon Communications is expected to under-perform the Textron. But the stock apears to be less risky and, when comparing its historical volatility, Verizon Communications is 1.36 times less risky than Textron. The stock trades about -0.11 of its potential returns per unit of risk. The Textron is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  128,862  in Textron on April 20, 2025 and sell it today you would earn a total of  26,362  from holding Textron or generate 20.46% return on investment over 90 days.

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

Verizon Communications  vs.  Textron

Verizon Communications

Risk-Adjusted Performance

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.

Textron

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Textron are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Textron showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Verizon Communications and Textron

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

The idea behind Verizon Communications and Textron 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 Transaction History module to view history of all your transactions and understand their impact on performance.