Correlation Between Cadence Design and Zhihu

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

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

Diversification Opportunities for Cadence Design and Zhihu

-0.84

Correlation Coefficient

Cadence Design  Zhihu

Pay attention - limited upside

The 3 months correlation between Cadence and Zhihu is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding Cadence Design Systems and Zhihu Inc ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhihu Inc ADR and Cadence Design 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 Cadence Design Systems are associated (or correlated) with Zhihu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhihu Inc ADR has no effect on the direction of Cadence Design i.e., Cadence Design and Zhihu go up and down completely randomly.

Pair Corralation between Cadence Design and Zhihu

Given the investment horizon of 90 days Cadence Design Systems is expected to under-perform the Zhihu. But the stock apears to be less risky and, when comparing its historical volatility, Cadence Design Systems is 1.92 times less risky than Zhihu. The stock trades about -0.08 of its potential returns per unit of risk. The Zhihu Inc ADR is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  362.00  in Zhihu Inc ADR on December 28, 2024 and sell it today you would earn a total of  103.00  from holding Zhihu Inc ADR or generate 28.45% return on investment over 90 days.

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

Cadence Design Systems  vs.  Zhihu Inc ADR

Cadence Design Systems

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cadence Design Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Zhihu Inc ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Zhihu Inc ADR are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating technical indicators, Zhihu demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cadence Design and Zhihu

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

The idea behind Cadence Design Systems and Zhihu Inc ADR 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.