Correlation Between DIA and ZEN

Can any of the company-specific risk be diversified away by investing in both DIA 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 DIA and ZEN into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between DIA and ZEN, you can compare the effects of market volatilities on DIA 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 DIA with a short position of ZEN. Check out your portfolio center. Please also check ongoing floating volatility patterns of DIA and ZEN.

Diversification Opportunities for DIA and ZEN

0.93

Correlation Coefficient

DIA  ZEN

Almost no diversification

The 3 months correlation between DIA and ZEN is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding DIA and ZEN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ZEN and DIA 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 DIA 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 DIA i.e., DIA and ZEN go up and down completely randomly.

Pair Corralation between DIA and ZEN

Assuming the 90 days trading horizon DIA is expected to generate 1.15 times more return on investment than ZEN. However, DIA is 1.15 times more volatile than ZEN. It trades about 0.03 of its potential returns per unit of risk. ZEN is currently generating about 0.0 per unit of risk. If you would invest  52.00  in DIA on January 29, 2024 and sell it today you would lose (2.00) from holding DIA or give up 3.85% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

DIA  vs.  ZEN

DIA

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in DIA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, DIA exhibited solid returns over the last few months and may actually be approaching a breakup point.

ZEN

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ZEN are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, ZEN exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DIA and ZEN

The main advantage of trading using opposite DIA and ZEN positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DIA 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 DIA 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.

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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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.