Can any of the company-specific risk be diversified away by investing in both DZS and Fathom Digital 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 DZS and Fathom Digital into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between DZS Inc and Fathom Digital Manufacturing, you can compare the effects of market volatilities on DZS and Fathom Digital 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 DZS with a short position of Fathom Digital. Check out your portfolio center. Please also check ongoing floating volatility patterns of DZS and Fathom Digital.
Diversification Opportunities for DZS and Fathom Digital
The 3 months correlation between DZS and Fathom is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding DZS Inc and Fathom Digital Manufacturing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fathom Digital Manuf and DZS 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 DZS Inc are associated (or correlated) with Fathom Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fathom Digital Manuf has no effect on the direction of DZS i.e., DZS and Fathom Digital go up and down completely randomly.
Given the investment horizon of 90 days DZS Inc is expected to generate 0.84 times more return on investment than Fathom Digital. However, DZS Inc is 1.19 times less risky than Fathom Digital. It trades about -0.06 of its potential returns per unit of risk. Fathom Digital Manufacturing is currently generating about -0.06 per unit of risk. If you would invest 156.00 in DZS Inc on September 7, 2023 and sell it today you would lose (21.00) from holding DZS Inc or give up 13.46% of portfolio value over 90 days.
Over the last 90 days DZS Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.
Over the last 90 days Fathom Digital Manufacturing has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.
The main advantage of trading using opposite DZS and Fathom Digital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DZS position performs unexpectedly, Fathom Digital 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 Fathom Digital will offset losses from the drop in Fathom Digital's long position.
The idea behind DZS Inc and Fathom Digital Manufacturing 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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