Correlation Between ZOZO and Tesla
Can any of the company-specific risk be diversified away by investing in both ZOZO and Tesla 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 ZOZO and Tesla into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ZOZO Inc and Tesla Inc, you can compare the effects of market volatilities on ZOZO and Tesla 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 ZOZO with a short position of Tesla. Check out your portfolio center. Please also check ongoing floating volatility patterns of ZOZO and Tesla.
Diversification Opportunities for ZOZO and Tesla
Very poor diversification
The 3 months correlation between ZOZO and Tesla is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding ZOZO Inc and Tesla Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tesla Inc and ZOZO 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 ZOZO Inc are associated (or correlated) with Tesla. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tesla Inc has no effect on the direction of ZOZO i.e., ZOZO and Tesla go up and down completely randomly.
Pair Corralation between ZOZO and Tesla
Assuming the 90 days horizon ZOZO Inc is expected to generate 1.11 times more return on investment than Tesla. However, ZOZO is 1.11 times more volatile than Tesla Inc. It trades about 0.21 of its potential returns per unit of risk. Tesla Inc is currently generating about 0.05 per unit of risk. If you would invest 2,005 in ZOZO Inc on September 12, 2024 and sell it today you would earn a total of 1,215 from holding ZOZO Inc or generate 60.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 17.9% |
| Values | Daily Returns |
ZOZO Inc vs. Tesla Inc
Performance |
| Timeline |
| ZOZO Inc |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Tesla Inc |
ZOZO and Tesla Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ZOZO and Tesla
The main advantage of trading using opposite ZOZO and Tesla positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ZOZO position performs unexpectedly, Tesla 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 Tesla will offset losses from the drop in Tesla's long position.The idea behind ZOZO Inc and Tesla Inc 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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