Can any of the company-specific risk be diversified away by investing in both SPDR Portfolio and ZEGA Buy 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 SPDR Portfolio and ZEGA Buy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SPDR Portfolio Emerging and ZEGA Buy And, you can compare the effects of market volatilities on SPDR Portfolio and ZEGA Buy 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 SPDR Portfolio with a short position of ZEGA Buy. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR Portfolio and ZEGA Buy.
Diversification Opportunities for SPDR Portfolio and ZEGA Buy
The 3 months correlation between SPDR and ZEGA is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Portfolio Emerging and ZEGA Buy And in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ZEGA Buy And and SPDR Portfolio 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 SPDR Portfolio Emerging are associated (or correlated) with ZEGA Buy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ZEGA Buy And has no effect on the direction of SPDR Portfolio i.e., SPDR Portfolio and ZEGA Buy go up and down completely randomly.
Pair Corralation between SPDR Portfolio and ZEGA Buy
Given the investment horizon of 90 days SPDR Portfolio Emerging is expected to generate 1.3 times more return on investment than ZEGA Buy. However, SPDR Portfolio is 1.3 times more volatile than ZEGA Buy And. It trades about -0.14 of its potential returns per unit of risk. ZEGA Buy And is currently generating about -0.4 per unit of risk. If you would invest 3,432 in SPDR Portfolio Emerging on July 2, 2023 and sell it today you would lose (75.00) from holding SPDR Portfolio Emerging or give up 2.19% of portfolio value over 90 days.
Over the last 90 days SPDR Portfolio Emerging has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, SPDR Portfolio is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the insiders.
Over the last 90 days ZEGA Buy And has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, ZEGA Buy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.
The main advantage of trading using opposite SPDR Portfolio and ZEGA Buy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR Portfolio position performs unexpectedly, ZEGA Buy 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 ZEGA Buy will offset losses from the drop in ZEGA Buy's long position.
The idea behind SPDR Portfolio Emerging and ZEGA Buy And 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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