Correlation Between Zoetis and Connect Biopharma

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

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

Diversification Opportunities for Zoetis and Connect Biopharma

0.67

Correlation Coefficient

Zoetis  Connect Biopharma

Poor diversification

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

Pair Corralation between Zoetis and Connect Biopharma

Considering the 90-day investment horizon Zoetis Inc is expected to generate 0.26 times more return on investment than Connect Biopharma. However, Zoetis Inc is 3.8 times less risky than Connect Biopharma. It trades about -0.05 of its potential returns per unit of risk. Connect Biopharma Holdings is currently generating about -0.04 per unit of risk. If you would invest  18,314  in Zoetis Inc on September 2, 2024 and sell it today you would lose (789.00) from holding Zoetis Inc or give up 4.31% of portfolio value over 90 days.

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

Zoetis Inc  vs.  Connect Biopharma Holdings

Zoetis Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zoetis Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Zoetis is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Connect Biopharma

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Connect Biopharma Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Zoetis and Connect Biopharma

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

The idea behind Zoetis Inc and Connect Biopharma Holdings 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 Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.