Correlation Between NEO and ZB

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

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

Diversification Opportunities for NEO and ZB

0.17

Correlation Coefficient

NEO  ZB

Average diversification

The 3 months correlation between NEO and ZB is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding NEO and ZB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ZB and NEO 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 NEO 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 NEO i.e., NEO and ZB go up and down completely randomly.

Pair Corralation between NEO and ZB

If you would invest  1,571  in NEO on January 26, 2024 and sell it today you would earn a total of  235.00  from holding NEO or generate 14.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	4.55%
Values	Daily Returns

NEO  vs.  ZB

NEO

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NEO are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, NEO exhibited solid returns over the last few months and may actually be approaching a breakup point.

ZB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ZB has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, ZB is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with NEO and ZB

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

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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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.