Correlation Between Nokia and ZTE

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

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

Diversification Opportunities for Nokia and ZTE

0.34

Correlation Coefficient

Nokia  ZTE

Weak diversification

The 3 months correlation between Nokia and ZTE is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Nokia and ZTE Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ZTE Corporation and Nokia 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 Nokia 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 Nokia i.e., Nokia and ZTE go up and down completely randomly.

Pair Corralation between Nokia and ZTE

Assuming the 90 days trading horizon Nokia is expected to generate 0.44 times more return on investment than ZTE. However, Nokia is 2.29 times less risky than ZTE. It trades about 0.1 of its potential returns per unit of risk. ZTE Corporation is currently generating about 0.0 per unit of risk. If you would invest  427.00  in Nokia on December 28, 2024 and sell it today you would earn a total of  55.00  from holding Nokia or generate 12.88% return on investment over 90 days.

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

Nokia  vs.  ZTE Corp.

Nokia

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nokia are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Nokia reported solid returns over the last few months and may actually be approaching a breakup point.

ZTE Corporation

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Nokia and ZTE

The main advantage of trading using opposite Nokia and ZTE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nokia 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 Nokia 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.

Check out your portfolio center.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.