Correlation Between Desktop Metal and Zepp Health

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

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

Diversification Opportunities for Desktop Metal and Zepp Health

0.63

Correlation Coefficient

Desktop Metal  Zepp Health

Poor diversification

The 3 months correlation between Desktop and Zepp is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Desktop Metal and Zepp Health Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zepp Health Corp and Desktop Metal 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 Desktop Metal are associated (or correlated) with Zepp Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zepp Health Corp has no effect on the direction of Desktop Metal i.e., Desktop Metal and Zepp Health go up and down completely randomly.

Pair Corralation between Desktop Metal and Zepp Health

Allowing for the 90-day total investment horizon Desktop Metal is expected to under-perform the Zepp Health. But the stock apears to be less risky and, when comparing its historical volatility, Desktop Metal is 1.61 times less risky than Zepp Health. The stock trades about -0.15 of its potential returns per unit of risk. The Zepp Health Corp is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  350.00  in Zepp Health Corp on September 13, 2024 and sell it today you would lose (53.00) from holding Zepp Health Corp or give up 15.14% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.67%
Values	Daily Returns

Desktop Metal  vs.  Zepp Health Corp

Desktop Metal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Desktop Metal has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Zepp Health Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zepp Health Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Zepp Health is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Desktop Metal and Zepp Health

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

The idea behind Desktop Metal and Zepp Health Corp 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.