Correlation Between ZENITH BANK and NORTHERN NIGERIA

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

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

Diversification Opportunities for ZENITH BANK and NORTHERN NIGERIA

0.47

Correlation Coefficient

ZENITH BANK  NORTHERN NIGERIA

Very weak diversification

The 3 months correlation between ZENITH and NORTHERN is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding ZENITH BANK PLC and NORTHERN NIGERIA FLOUR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NORTHERN NIGERIA FLOUR and ZENITH BANK 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 ZENITH BANK PLC are associated (or correlated) with NORTHERN NIGERIA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NORTHERN NIGERIA FLOUR has no effect on the direction of ZENITH BANK i.e., ZENITH BANK and NORTHERN NIGERIA go up and down completely randomly.

Pair Corralation between ZENITH BANK and NORTHERN NIGERIA

Assuming the 90 days trading horizon ZENITH BANK is expected to generate 4.8 times less return on investment than NORTHERN NIGERIA. But when comparing it to its historical volatility, ZENITH BANK PLC is 3.22 times less risky than NORTHERN NIGERIA. It trades about 0.3 of its potential returns per unit of risk. NORTHERN NIGERIA FLOUR is currently generating about 0.44 of returns per unit of risk over similar time horizon. If you would invest  3,375  in NORTHERN NIGERIA FLOUR on September 28, 2024 and sell it today you would earn a total of  1,015  from holding NORTHERN NIGERIA FLOUR or generate 30.07% return on investment over 90 days.

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

ZENITH BANK PLC  vs.  NORTHERN NIGERIA FLOUR

ZENITH BANK PLC

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ZENITH BANK PLC are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent basic indicators, ZENITH BANK sustained solid returns over the last few months and may actually be approaching a breakup point.

NORTHERN NIGERIA FLOUR

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NORTHERN NIGERIA FLOUR are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very weak technical and fundamental indicators, NORTHERN NIGERIA displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ZENITH BANK and NORTHERN NIGERIA

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

The idea behind ZENITH BANK PLC and NORTHERN NIGERIA FLOUR 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.