Correlation Between ZEN and THC

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

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

Diversification Opportunities for ZEN and THC

0.19

Correlation Coefficient

ZEN  THC

Average diversification

The 3 months correlation between ZEN and THC is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding ZEN and THC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on THC and ZEN 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 ZEN are associated (or correlated) with THC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of THC has no effect on the direction of ZEN i.e., ZEN and THC go up and down completely randomly.

Pair Corralation between ZEN and THC

Assuming the 90 days trading horizon ZEN is expected to under-perform the THC. But the crypto coin apears to be less risky and, when comparing its historical volatility, ZEN is 3.67 times less risky than THC. The crypto coin trades about -0.34 of its potential returns per unit of risk. The THC is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  0.28  in THC on January 29, 2024 and sell it today you would lose (0.10) from holding THC or give up 34.43% of portfolio value over 90 days.

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

ZEN  vs.  THC

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.

THC

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days THC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather weak fundamental indicators, THC exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ZEN and THC

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

The idea behind ZEN and THC 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.