Correlation Between DENT and ZSC

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

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

Diversification Opportunities for DENT and ZSC

-0.05

Correlation Coefficient

DENT  ZSC

Good diversification

The 3 months correlation between DENT and ZSC is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding DENT and ZSC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ZSC and DENT 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 DENT are associated (or correlated) with ZSC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ZSC has no effect on the direction of DENT i.e., DENT and ZSC go up and down completely randomly.

Pair Corralation between DENT and ZSC

Assuming the 90 days trading horizon DENT is expected to generate 4.48 times less return on investment than ZSC. But when comparing it to its historical volatility, DENT is 8.63 times less risky than ZSC. It trades about 0.28 of its potential returns per unit of risk. ZSC is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  0.01  in ZSC on September 3, 2024 and sell it today you would lose  0.00  from holding ZSC or give up 40.82% of portfolio value over 90 days.

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

DENT  vs.  ZSC

DENT

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in DENT are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, DENT exhibited solid returns over the last few months and may actually be approaching a breakup point.

ZSC

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ZSC are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, ZSC exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DENT and ZSC

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

The idea behind DENT and ZSC 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.