Can any of the company-specific risk be diversified away by investing in both DZS and Kimball Electronics 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 Kimball Electronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between DZS Inc and Kimball Electronics, you can compare the effects of market volatilities on DZS and Kimball Electronics 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 Kimball Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of DZS and Kimball Electronics.
Diversification Opportunities for DZS and Kimball Electronics
The 3 months correlation between DZS and Kimball is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding DZS Inc and Kimball Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kimball Electronics 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 Kimball Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kimball Electronics has no effect on the direction of DZS i.e., DZS and Kimball Electronics go up and down completely randomly.
Pair Corralation between DZS and Kimball Electronics
Given the investment horizon of 90 days DZS Inc is expected to generate 2.29 times more return on investment than Kimball Electronics. However, DZS is 2.29 times more volatile than Kimball Electronics. It trades about 0.19 of its potential returns per unit of risk. Kimball Electronics is currently generating about -0.09 per unit of risk. If you would invest 125.00 in DZS Inc on September 2, 2023 and sell it today you would earn a total of 36.00 from holding DZS Inc or generate 28.8% return on investment 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 unfluctuating 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 Kimball Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.
The main advantage of trading using opposite DZS and Kimball Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DZS position performs unexpectedly, Kimball Electronics 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 Kimball Electronics will offset losses from the drop in Kimball Electronics' long position.
The idea behind DZS Inc and Kimball Electronics 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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