Correlation Between Motorola Solutions and ZTE

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

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

Diversification Opportunities for Motorola Solutions and ZTE

-0.6

Correlation Coefficient

Motorola Solutions  ZTE

Excellent diversification

The 3 months correlation between Motorola and ZTE is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Motorola Solutions and ZTE Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ZTE Corporation and Motorola Solutions 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 Motorola Solutions are associated (or correlated) with ZTE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ZTE Corporation has no effect on the direction of Motorola Solutions i.e., Motorola Solutions and ZTE go up and down completely randomly.

Pair Corralation between Motorola Solutions and ZTE

Assuming the 90 days trading horizon Motorola Solutions is expected to under-perform the ZTE. But the stock apears to be less risky and, when comparing its historical volatility, Motorola Solutions is 3.33 times less risky than ZTE. The stock trades about -0.16 of its potential returns per unit of risk. The ZTE Corporation is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  225.00  in ZTE Corporation on November 29, 2024 and sell it today you would earn a total of  182.00  from holding ZTE Corporation or generate 80.89% return on investment over 90 days.

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

Motorola Solutions  vs.  ZTE Corp.

Motorola Solutions

Risk-Adjusted Performance

Very Weak

Over the last 90 days Motorola Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's essential indicators remain nearly stable which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

ZTE Corporation

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ZTE Corporation are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, ZTE reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Motorola Solutions and ZTE

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

The idea behind Motorola Solutions and ZTE Corporation 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.