Correlation Between CAC Next and ZCCM Investments

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

By analyzing existing cross correlation between CAC Next 20 and ZCCM Investments Holdings, you can compare the effects of market volatilities on CAC Next and ZCCM Investments 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 CAC Next with a short position of ZCCM Investments. Check out your portfolio center. Please also check ongoing floating volatility patterns of CAC Next and ZCCM Investments.

Diversification Opportunities for CAC Next and ZCCM Investments

-0.51

Correlation Coefficient

CAC Next  ZCCM Investments

Excellent diversification

The 3 months correlation between CAC and ZCCM is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding CAC Next 20 and ZCCM Investments Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ZCCM Investments Holdings and CAC Next 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 CAC Next 20 are associated (or correlated) with ZCCM Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ZCCM Investments Holdings has no effect on the direction of CAC Next i.e., CAC Next and ZCCM Investments go up and down completely randomly.

Pair Corralation between CAC Next and ZCCM Investments

Assuming the 90 days trading horizon CAC Next is expected to generate 19.79 times less return on investment than ZCCM Investments. But when comparing it to its historical volatility, CAC Next 20 is 7.04 times less risky than ZCCM Investments. It trades about 0.01 of its potential returns per unit of risk. ZCCM Investments Holdings is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  114.00  in ZCCM Investments Holdings on September 20, 2024 and sell it today you would earn a total of  8.00  from holding ZCCM Investments Holdings or generate 7.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	97.23%
Values	Daily Returns

CAC Next 20  vs.  ZCCM Investments Holdings

Pair Trading with CAC Next and ZCCM Investments

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

The idea behind CAC Next 20 and ZCCM Investments 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.