Correlation Between GMO Internet and Zhihu

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

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

Diversification Opportunities for GMO Internet and Zhihu

0.08

Correlation Coefficient

GMO Internet  Zhihu

Significant diversification

The 3 months correlation between GMO and Zhihu is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding GMO Internet 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 GMO Internet 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 GMO Internet 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 GMO Internet i.e., GMO Internet and Zhihu go up and down completely randomly.

Pair Corralation between GMO Internet and Zhihu

Assuming the 90 days horizon GMO Internet is expected to generate 4.22 times more return on investment than Zhihu. However, GMO Internet is 4.22 times more volatile than Zhihu Inc ADR. It trades about 0.08 of its potential returns per unit of risk. Zhihu Inc ADR is currently generating about -0.03 per unit of risk. If you would invest  1,156  in GMO Internet on October 10, 2024 and sell it today you would earn a total of  524.00  from holding GMO Internet or generate 45.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	85.08%
Values	Daily Returns

GMO Internet  vs.  Zhihu Inc ADR

GMO Internet

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GMO Internet has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, GMO Internet is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Zhihu Inc ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zhihu Inc ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's technical indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with GMO Internet and Zhihu

The main advantage of trading using opposite GMO Internet and Zhihu positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GMO Internet 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 GMO Internet 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.