Can any of the company-specific risk be diversified away by investing in both American Shipping and ZIM Integrated 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 American Shipping and ZIM Integrated into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Shipping and ZIM Integrated Shipping, you can compare the effects of market volatilities on American Shipping and ZIM Integrated 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 American Shipping with a short position of ZIM Integrated. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Shipping and ZIM Integrated.
Diversification Opportunities for American Shipping and ZIM Integrated
The 3 months correlation between American and ZIM is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding American Shipping and ZIM Integrated Shipping in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ZIM Integrated Shipping and American Shipping 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 American Shipping are associated (or correlated) with ZIM Integrated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ZIM Integrated Shipping has no effect on the direction of American Shipping i.e., American Shipping and ZIM Integrated go up and down completely randomly.
Pair Corralation between American Shipping and ZIM Integrated
Assuming the 90 days horizon American Shipping is expected to generate 4.71 times less return on investment than ZIM Integrated. But when comparing it to its historical volatility, American Shipping is 2.66 times less risky than ZIM Integrated. It trades about 0.32 of its potential returns per unit of risk. ZIM Integrated Shipping is currently generating about 0.57 of returns per unit of risk over similar time horizon. If you would invest 1,342 in ZIM Integrated Shipping on March 6, 2024 and sell it today you would earn a total of 803.00 from holding ZIM Integrated Shipping or generate 59.84% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in American Shipping are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak forward-looking indicators, American Shipping reported solid returns over the last few months and may actually be approaching a breakup point.
Compared to the overall equity markets, risk-adjusted returns on investments in ZIM Integrated Shipping are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very weak forward indicators, ZIM Integrated displayed solid returns over the last few months and may actually be approaching a breakup point.