Correlation Between Coloplast and Carl Zeiss

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

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

Diversification Opportunities for Coloplast and Carl Zeiss

0.02

Correlation Coefficient

Coloplast  Carl Zeiss

Significant diversification

The 3 months correlation between Coloplast and Carl is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Coloplast AS and Carl Zeiss Meditec in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carl Zeiss Meditec and Coloplast 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 Coloplast AS are associated (or correlated) with Carl Zeiss. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carl Zeiss Meditec has no effect on the direction of Coloplast i.e., Coloplast and Carl Zeiss go up and down completely randomly.

Pair Corralation between Coloplast and Carl Zeiss

Assuming the 90 days horizon Coloplast AS is expected to generate 0.56 times more return on investment than Carl Zeiss. However, Coloplast AS is 1.78 times less risky than Carl Zeiss. It trades about 0.01 of its potential returns per unit of risk. Carl Zeiss Meditec is currently generating about -0.07 per unit of risk. If you would invest  12,860  in Coloplast AS on September 2, 2024 and sell it today you would lose (3.00) from holding Coloplast AS or give up 0.02% of portfolio value over 90 days.

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

Coloplast AS  vs.  Carl Zeiss Meditec

Coloplast AS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Coloplast AS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental drivers, Coloplast is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Carl Zeiss Meditec

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Coloplast and Carl Zeiss

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

The idea behind Coloplast AS and Carl Zeiss Meditec 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.