Correlation Between NEM INSURANCE and ZENITH BANK

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

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

Diversification Opportunities for NEM INSURANCE and ZENITH BANK

0.73

Correlation Coefficient

NEM INSURANCE  ZENITH BANK

Poor diversification

The 3 months correlation between NEM and ZENITH is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding NEM INSURANCE PLC and ZENITH BANK PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ZENITH BANK PLC and NEM INSURANCE 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 NEM INSURANCE PLC are associated (or correlated) with ZENITH BANK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ZENITH BANK PLC has no effect on the direction of NEM INSURANCE i.e., NEM INSURANCE and ZENITH BANK go up and down completely randomly.

Pair Corralation between NEM INSURANCE and ZENITH BANK

Assuming the 90 days trading horizon NEM INSURANCE PLC is expected to generate 2.32 times more return on investment than ZENITH BANK. However, NEM INSURANCE is 2.32 times more volatile than ZENITH BANK PLC. It trades about 0.0 of its potential returns per unit of risk. ZENITH BANK PLC is currently generating about -0.2 per unit of risk. If you would invest  1,325  in NEM INSURANCE PLC on November 29, 2024 and sell it today you would lose (15.00) from holding NEM INSURANCE PLC or give up 1.13% of portfolio value over 90 days.

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

NEM INSURANCE PLC  vs.  ZENITH BANK PLC

NEM INSURANCE PLC

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NEM INSURANCE PLC are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, NEM INSURANCE unveiled solid returns over the last few months and may actually be approaching a breakup point.

ZENITH BANK PLC

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ZENITH BANK PLC are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, ZENITH BANK may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with NEM INSURANCE and ZENITH BANK

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

The idea behind NEM INSURANCE PLC and ZENITH BANK PLC 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.