Correlation Between ZTO Express and GXO Logistics

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

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

Diversification Opportunities for ZTO Express and GXO Logistics

0.24

Correlation Coefficient

ZTO Express  GXO Logistics

Modest diversification

The 3 months correlation between ZTO and GXO is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding ZTO Express and GXO Logistics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GXO Logistics and ZTO Express 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 ZTO Express are associated (or correlated) with GXO Logistics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GXO Logistics has no effect on the direction of ZTO Express i.e., ZTO Express and GXO Logistics go up and down completely randomly.

Pair Corralation between ZTO Express and GXO Logistics

Considering the 90-day investment horizon ZTO Express is expected to generate 1.25 times more return on investment than GXO Logistics. However, ZTO Express is 1.25 times more volatile than GXO Logistics. It trades about 0.17 of its potential returns per unit of risk. GXO Logistics is currently generating about -0.09 per unit of risk. If you would invest  2,031  in ZTO Express on February 27, 2024 and sell it today you would earn a total of  377.00  from holding ZTO Express or generate 18.56% return on investment over 90 days.

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

ZTO Express  vs.  GXO Logistics

ZTO Express

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ZTO Express are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, ZTO Express displayed solid returns over the last few months and may actually be approaching a breakup point.

GXO Logistics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GXO Logistics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, GXO Logistics is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with ZTO Express and GXO Logistics

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

The idea behind ZTO Express and GXO Logistics 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.