Correlation Between ZEL and KMD

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

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

Diversification Opportunities for ZEL and KMD

0.6

Correlation Coefficient

ZEL  KMD

Poor diversification

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

Pair Corralation between ZEL and KMD

Assuming the 90 days trading horizon ZEL is expected to generate 1.11 times less return on investment than KMD. But when comparing it to its historical volatility, ZEL is 1.07 times less risky than KMD. It trades about 0.38 of its potential returns per unit of risk. KMD is currently generating about 0.39 of returns per unit of risk over similar time horizon. If you would invest  23.00  in KMD on September 1, 2024 and sell it today you would earn a total of  10.00  from holding KMD or generate 43.48% return on investment over 90 days.

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

ZEL  vs.  KMD

ZEL

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ZEL are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady essential indicators, ZEL exhibited solid returns over the last few months and may actually be approaching a breakup point.

KMD

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in KMD are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, KMD exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ZEL and KMD

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

The idea behind ZEL and KMD 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.