Correlation Between ZB and Numeraire
Can any of the company-specific risk be diversified away by investing in both ZB and Numeraire 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 ZB and Numeraire into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ZB and Numeraire, you can compare the effects of market volatilities on ZB and Numeraire 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 ZB with a short position of Numeraire. Check out your portfolio center. Please also check ongoing floating volatility patterns of ZB and Numeraire.
Diversification Opportunities for ZB and Numeraire
Average diversification
The 3 months correlation between ZB and Numeraire is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding ZB and Numeraire in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Numeraire and ZB 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 ZB are associated (or correlated) with Numeraire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Numeraire has no effect on the direction of ZB i.e., ZB and Numeraire go up and down completely randomly.
Pair Corralation between ZB and Numeraire
Assuming the 90 days horizon ZB is expected to generate 1.81 times more return on investment than Numeraire. However, ZB is 1.81 times more volatile than Numeraire. It trades about 0.07 of its potential returns per unit of risk. Numeraire is currently generating about 0.06 per unit of risk. If you would invest 13.00 in ZB on December 29, 2023 and sell it today you would earn a total of 31.00 from holding ZB or generate 238.46% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Insignificant |
Accuracy | 73.58% |
Values | Daily Returns |
ZB vs. Numeraire
Performance |
Timeline |
ZB |
Risk-Adjusted Performance
0 of 100
Low | High |
Very Weak
Numeraire |
ZB and Numeraire Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with ZB and Numeraire
The main advantage of trading using opposite ZB and Numeraire positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ZB position performs unexpectedly, Numeraire 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 Numeraire will offset losses from the drop in Numeraire's long position.The idea behind ZB and Numeraire 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
Other Complementary Tools
Commodity Channel Use Commodity Channel Index to analyze current equity momentum | |
Sectors List of equity sectors categorizing publicly traded companies based on their primary business activities | |
Companies Directory Evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals | |
Fundamental Analysis View fundamental data based on most recent published financial statements | |
Crypto Correlations Use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins | |
Portfolio Volatility Check portfolio volatility and analyze historical return density to properly model market risk |