Can any of the company-specific risk be diversified away by investing in both Etsy and ZALANDO SE 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 Etsy and ZALANDO SE into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Etsy Inc and ZALANDO SE ADR, you can compare the effects of market volatilities on Etsy and ZALANDO SE 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 Etsy with a short position of ZALANDO SE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Etsy and ZALANDO SE.
Diversification Opportunities for Etsy and ZALANDO SE
The 3 months correlation between Etsy and ZALANDO is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Etsy Inc and ZALANDO SE ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ZALANDO SE ADR and Etsy 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 Etsy Inc are associated (or correlated) with ZALANDO SE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ZALANDO SE ADR has no effect on the direction of Etsy i.e., Etsy and ZALANDO SE go up and down completely randomly.
Given the investment horizon of 90 days Etsy Inc is expected to generate 1.11 times more return on investment than ZALANDO SE. However, Etsy is 1.11 times more volatile than ZALANDO SE ADR. It trades about 0.02 of its potential returns per unit of risk. ZALANDO SE ADR is currently generating about 0.02 per unit of risk. If you would invest 6,498 in Etsy Inc on March 6, 2024 and sell it today you would earn a total of 22.00 from holding Etsy Inc or generate 0.34% return on investment over 90 days.
Over the last 90 days Etsy Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Etsy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.
Compared to the overall equity markets, risk-adjusted returns on investments in ZALANDO SE ADR are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain fundamental indicators, ZALANDO SE showed solid returns over the last few months and may actually be approaching a breakup point.