Correlation Between ZTE Corp and Industrial

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

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

Diversification Opportunities for ZTE Corp and Industrial

0.67

Correlation Coefficient

ZTE Corp  Industrial

Poor diversification

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

Pair Corralation between ZTE Corp and Industrial

Assuming the 90 days trading horizon ZTE Corp is expected to generate 2.6 times more return on investment than Industrial. However, ZTE Corp is 2.6 times more volatile than Industrial and Commercial. It trades about 0.2 of its potential returns per unit of risk. Industrial and Commercial is currently generating about 0.11 per unit of risk. If you would invest  2,542  in ZTE Corp on September 24, 2024 and sell it today you would earn a total of  1,196  from holding ZTE Corp or generate 47.05% return on investment over 90 days.

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

ZTE Corp  vs.  Industrial and Commercial

ZTE Corp

Risk-Adjusted Performance

15 of 100

Good

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

Industrial and Commercial

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial and Commercial are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Industrial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with ZTE Corp and Industrial

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

The idea behind ZTE Corp and Industrial and Commercial 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.