Correlation Between ZTE and Nokia
Can any of the company-specific risk be diversified away by investing in both ZTE and Nokia 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 ZTE and Nokia into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ZTE Corporation and Nokia, you can compare the effects of market volatilities on ZTE and Nokia 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 ZTE with a short position of Nokia. Check out your portfolio center. Please also check ongoing floating volatility patterns of ZTE and Nokia.
Diversification Opportunities for ZTE and Nokia
Poor diversification
The 3 months correlation between ZTE and Nokia is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding ZTE Corp. and Nokia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nokia and ZTE 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 ZTE Corporation are associated (or correlated) with Nokia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nokia has no effect on the direction of ZTE i.e., ZTE and Nokia go up and down completely randomly.
Pair Corralation between ZTE and Nokia
Assuming the 90 days horizon ZTE Corporation is expected to generate 1.6 times more return on investment than Nokia. However, ZTE is 1.6 times more volatile than Nokia. It trades about 0.03 of its potential returns per unit of risk. Nokia is currently generating about 0.03 per unit of risk. If you would invest 191.00 in ZTE Corporation on September 1, 2024 and sell it today you would earn a total of 33.00 from holding ZTE Corporation or generate 17.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
ZTE Corp. vs. Nokia
Performance |
| Timeline |
| ZTE Corporation |
| Nokia |
ZTE and Nokia Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ZTE and Nokia
The main advantage of trading using opposite ZTE and Nokia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ZTE position performs unexpectedly, Nokia 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 Nokia will offset losses from the drop in Nokia's long position.| ZTE vs. Martin Marietta Materials | ZTE vs. SPARTAN STORES | ZTE vs. Rayonier Advanced Materials | ZTE vs. Retail Estates NV |
| Nokia vs. STRAYER EDUCATION | Nokia vs. CAREER EDUCATION | Nokia vs. MYFAIR GOLD P | Nokia vs. Strategic Education |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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