Correlation Between NEM and ZB
Can any of the company-specific risk be diversified away by investing in both NEM and ZB 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 NEM and ZB into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NEM and ZB, you can compare the effects of market volatilities on NEM and ZB 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 NEM with a short position of ZB. Check out your portfolio center. Please also check ongoing floating volatility patterns of NEM and ZB.
Diversification Opportunities for NEM and ZB
Good diversification
The 3 months correlation between NEM and ZB is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding NEM and ZB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ZB and NEM 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 NEM are associated (or correlated) with ZB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ZB has no effect on the direction of NEM i.e., NEM and ZB go up and down completely randomly.
Pair Corralation between NEM and ZB
Assuming the 90 days trading horizon NEM is expected to generate 6.46 times less return on investment than ZB. But when comparing it to its historical volatility, NEM is 2.09 times less risky than ZB. It trades about 0.02 of its potential returns per unit of risk. ZB is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 27.00 in ZB on January 21, 2024 and sell it today you would earn a total of 17.00 from holding ZB or generate 62.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 42.8% |
| Values | Daily Returns |
NEM vs. ZB
Performance |
| Timeline |
| NEM |
| ZB |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
NEM and ZB Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NEM and ZB
The main advantage of trading using opposite NEM and ZB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NEM position performs unexpectedly, ZB 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 ZB will offset losses from the drop in ZB's long position.The idea behind NEM and ZB 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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