Correlation Between SLS and ZEL
Can any of the company-specific risk be diversified away by investing in both SLS and ZEL 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 SLS and ZEL into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SLS and ZEL, you can compare the effects of market volatilities on SLS and ZEL 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 SLS with a short position of ZEL. Check out your portfolio center. Please also check ongoing floating volatility patterns of SLS and ZEL.
Diversification Opportunities for SLS and ZEL
No risk reduction
The 3 months correlation between SLS and ZEL is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding SLS and ZEL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ZEL and SLS 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 SLS are associated (or correlated) with ZEL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ZEL has no effect on the direction of SLS i.e., SLS and ZEL go up and down completely randomly.
Pair Corralation between SLS and ZEL
Assuming the 90 days trading horizon SLS is expected to generate 3.66 times more return on investment than ZEL. However, SLS is 3.66 times more volatile than ZEL. It trades about 0.13 of its potential returns per unit of risk. ZEL is currently generating about 0.08 per unit of risk. If you would invest 181.00 in SLS on August 31, 2024 and sell it today you would earn a total of 1,025 from holding SLS or generate 566.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
SLS vs. ZEL
Performance |
| Timeline |
| SLS |
| ZEL |
SLS and ZEL Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SLS and ZEL
The main advantage of trading using opposite SLS and ZEL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SLS position performs unexpectedly, ZEL 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 ZEL will offset losses from the drop in ZEL's long position.The idea behind SLS and ZEL 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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