Correlation Between Zip Co and X Financial

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

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

Diversification Opportunities for Zip Co and X Financial

0.64

Correlation Coefficient

Zip Co  X Financial

Poor diversification

The 3 months correlation between Zip and XYF is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Zip Co Limited and X Financial Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on X Financial Class and Zip Co 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 Zip Co Limited are associated (or correlated) with X Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of X Financial Class has no effect on the direction of Zip Co i.e., Zip Co and X Financial go up and down completely randomly.

Pair Corralation between Zip Co and X Financial

Assuming the 90 days horizon Zip Co Limited is expected to under-perform the X Financial. But the pink sheet apears to be less risky and, when comparing its historical volatility, Zip Co Limited is 1.13 times less risky than X Financial. The pink sheet trades about -0.22 of its potential returns per unit of risk. The X Financial Class is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  645.00  in X Financial Class on September 12, 2024 and sell it today you would earn a total of  176.00  from holding X Financial Class or generate 27.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Zip Co Limited  vs.  X Financial Class

Zip Co Limited

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Zip Co Limited are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, Zip Co reported solid returns over the last few months and may actually be approaching a breakup point.

X Financial Class

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in X Financial Class are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, X Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zip Co and X Financial

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

The idea behind Zip Co Limited and X Financial Class 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 Global Correlations module to find global opportunities by holding instruments from different markets.