Correlation Between BTM and ZEN
Can any of the company-specific risk be diversified away by investing in both BTM and ZEN 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 BTM and ZEN into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BTM and ZEN, you can compare the effects of market volatilities on BTM and ZEN 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 BTM with a short position of ZEN. Check out your portfolio center. Please also check ongoing floating volatility patterns of BTM and ZEN.
Diversification Opportunities for BTM and ZEN
Poor diversification
The 3 months correlation between BTM and ZEN is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding BTM and ZEN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ZEN and BTM 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 BTM are associated (or correlated) with ZEN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ZEN has no effect on the direction of BTM i.e., BTM and ZEN go up and down completely randomly.
Pair Corralation between BTM and ZEN
Assuming the 90 days trading horizon BTM is expected to generate 0.7 times more return on investment than ZEN. However, BTM is 1.43 times less risky than ZEN. It trades about -0.05 of its potential returns per unit of risk. ZEN is currently generating about -0.28 per unit of risk. If you would invest 1.24 in BTM on January 26, 2024 and sell it today you would lose (0.09) from holding BTM or give up 7.26% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BTM vs. ZEN
Performance |
| Timeline |
| BTM |
| ZEN |
BTM and ZEN Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BTM and ZEN
The main advantage of trading using opposite BTM and ZEN positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BTM position performs unexpectedly, ZEN 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 ZEN will offset losses from the drop in ZEN's long position.The idea behind BTM and ZEN 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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