Correlation Between Zoetis and Eisai

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

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

Diversification Opportunities for Zoetis and Eisai

0.58

Correlation Coefficient

Zoetis  Eisai

Very weak diversification

The 3 months correlation between Zoetis and Eisai is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Zoetis Inc and Eisai Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eisai and Zoetis 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 Zoetis Inc are associated (or correlated) with Eisai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eisai has no effect on the direction of Zoetis i.e., Zoetis and Eisai go up and down completely randomly.

Pair Corralation between Zoetis and Eisai

Assuming the 90 days horizon Zoetis Inc is expected to under-perform the Eisai. But the stock apears to be less risky and, when comparing its historical volatility, Zoetis Inc is 2.03 times less risky than Eisai. The stock trades about -0.21 of its potential returns per unit of risk. The Eisai Co is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  2,800  in Eisai Co on September 22, 2024 and sell it today you would lose (188.00) from holding Eisai Co or give up 6.71% of portfolio value over 90 days.

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

Zoetis Inc  vs.  Eisai Co

Zoetis Inc

Risk-Adjusted Performance

0 of 100

Very Weak

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

Eisai

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eisai Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Zoetis and Eisai

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

The idea behind Zoetis Inc and Eisai Co 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.