Correlation Between Zapp Electric and BAIC

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

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

Diversification Opportunities for Zapp Electric and BAIC

-0.05

Correlation Coefficient

Zapp Electric  BAIC

Good diversification

The 3 months correlation between Zapp and BAIC is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Zapp Electric Vehicles and BAIC Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BAIC Motor and Zapp Electric 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 Zapp Electric Vehicles are associated (or correlated) with BAIC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BAIC Motor has no effect on the direction of Zapp Electric i.e., Zapp Electric and BAIC go up and down completely randomly.

Pair Corralation between Zapp Electric and BAIC

Assuming the 90 days horizon Zapp Electric Vehicles is expected to generate 2.95 times more return on investment than BAIC. However, Zapp Electric is 2.95 times more volatile than BAIC Motor. It trades about 0.06 of its potential returns per unit of risk. BAIC Motor is currently generating about -0.04 per unit of risk. If you would invest  0.80  in Zapp Electric Vehicles on December 27, 2024 and sell it today you would earn a total of  0.11  from holding Zapp Electric Vehicles or generate 13.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Zapp Electric Vehicles  vs.  BAIC Motor

Zapp Electric Vehicles

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Zapp Electric Vehicles are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Zapp Electric showed solid returns over the last few months and may actually be approaching a breakup point.

BAIC Motor

Risk-Adjusted Performance

Very Weak

Over the last 90 days BAIC Motor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Stock's essential indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Zapp Electric and BAIC

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

The idea behind Zapp Electric Vehicles and BAIC Motor 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.