Correlation Between Zepp Health and Wearable Devices

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

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

Diversification Opportunities for Zepp Health and Wearable Devices

-0.63

Correlation Coefficient

Zepp Health  Wearable Devices

Excellent diversification

The 3 months correlation between Zepp and Wearable is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Zepp Health Corp and Wearable Devices in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wearable Devices and Zepp Health 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 Zepp Health Corp are associated (or correlated) with Wearable Devices. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wearable Devices has no effect on the direction of Zepp Health i.e., Zepp Health and Wearable Devices go up and down completely randomly.

Pair Corralation between Zepp Health and Wearable Devices

Given the investment horizon of 90 days Zepp Health is expected to generate 159.88 times less return on investment than Wearable Devices. But when comparing it to its historical volatility, Zepp Health Corp is 37.65 times less risky than Wearable Devices. It trades about 0.05 of its potential returns per unit of risk. Wearable Devices is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  0.28  in Wearable Devices on September 29, 2024 and sell it today you would earn a total of  30.72  from holding Wearable Devices or generate 10971.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	87.3%
Values	Daily Returns

Zepp Health Corp  vs.  Wearable Devices

Zepp Health Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zepp Health Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Wearable Devices

Risk-Adjusted Performance

16 of 100

Solid

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

Pair Trading with Zepp Health and Wearable Devices

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

The idea behind Zepp Health Corp and Wearable Devices 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.