Correlation Between MTV and ZSC

Can any of the company-specific risk be diversified away by investing in both MTV and ZSC 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 MTV and ZSC into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between MTV and ZSC, you can compare the effects of market volatilities on MTV and ZSC 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 MTV with a short position of ZSC. Check out your portfolio center. Please also check ongoing floating volatility patterns of MTV and ZSC.

Diversification Opportunities for MTV and ZSC

0.8

Correlation Coefficient

MTV  ZSC

Very poor diversification

The 3 months correlation between MTV and ZSC is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding MTV and ZSC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ZSC and MTV 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 MTV are associated (or correlated) with ZSC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ZSC has no effect on the direction of MTV i.e., MTV and ZSC go up and down completely randomly.

Pair Corralation between MTV and ZSC

Assuming the 90 days trading horizon MTV is expected to generate 12.12 times less return on investment than ZSC. But when comparing it to its historical volatility, MTV is 7.13 times less risky than ZSC. It trades about 0.04 of its potential returns per unit of risk. ZSC is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  0.01  in ZSC on January 29, 2024 and sell it today you would earn a total of  0.01  from holding ZSC or generate 62.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

MTV  vs.  ZSC

MTV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MTV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, MTV is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

ZSC

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ZSC are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, ZSC exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MTV and ZSC

The main advantage of trading using opposite MTV and ZSC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MTV position performs unexpectedly, ZSC 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 ZSC will offset losses from the drop in ZSC's long position.

The idea behind MTV and ZSC 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.

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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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.