Correlation Between Metals X and ZIP

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

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

Diversification Opportunities for Metals X and ZIP

0.5

Correlation Coefficient

Metals X  ZIP

Very weak diversification

The 3 months correlation between Metals and ZIP is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Metals X and ZIP Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ZIP Co and Metals X 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 Metals X are associated (or correlated) with ZIP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ZIP Co has no effect on the direction of Metals X i.e., Metals X and ZIP go up and down completely randomly.

Pair Corralation between Metals X and ZIP

Assuming the 90 days trading horizon Metals X is expected to generate 2.92 times less return on investment than ZIP. But when comparing it to its historical volatility, Metals X is 1.36 times less risky than ZIP. It trades about 0.11 of its potential returns per unit of risk. ZIP Co is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  167.00  in ZIP Co on April 25, 2025 and sell it today you would earn a total of  132.00  from holding ZIP Co or generate 79.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Metals X  vs.  ZIP Co

Metals X

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Metals X are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Metals X unveiled solid returns over the last few months and may actually be approaching a breakup point.

ZIP Co

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ZIP Co are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, ZIP unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Metals X and ZIP

The main advantage of trading using opposite Metals X and ZIP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Metals X position performs unexpectedly, ZIP 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 ZIP will offset losses from the drop in ZIP's long position.

The idea behind Metals X and ZIP Co 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.