Correlation Between Microfriend and Zinus

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

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

Diversification Opportunities for Microfriend and Zinus

-0.08

Correlation Coefficient

Microfriend  Zinus

Good diversification

The 3 months correlation between Microfriend and Zinus is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Microfriend and Zinus Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zinus Inc and Microfriend 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 Microfriend are associated (or correlated) with Zinus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zinus Inc has no effect on the direction of Microfriend i.e., Microfriend and Zinus go up and down completely randomly.

Pair Corralation between Microfriend and Zinus

Assuming the 90 days trading horizon Microfriend is expected to under-perform the Zinus. In addition to that, Microfriend is 1.19 times more volatile than Zinus Inc. It trades about -0.08 of its total potential returns per unit of risk. Zinus Inc is currently generating about 0.19 per unit of volatility. If you would invest  1,750,000  in Zinus Inc on October 7, 2024 and sell it today you would earn a total of  910,000  from holding Zinus Inc or generate 52.0% return on investment over 90 days.

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

Microfriend  vs.  Zinus Inc

Microfriend

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Microfriend has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Zinus Inc

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Zinus Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat weak basic indicators, Zinus sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microfriend and Zinus

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

The idea behind Microfriend and Zinus Inc 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.