Correlation Between HUTCHMED DRC and Zhihu

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

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

Diversification Opportunities for HUTCHMED DRC and Zhihu

-0.05

Correlation Coefficient

HUTCHMED DRC  Zhihu

Good diversification

The 3 months correlation between HUTCHMED and Zhihu is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding HUTCHMED DRC 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 HUTCHMED DRC 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 HUTCHMED DRC 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 HUTCHMED DRC i.e., HUTCHMED DRC and Zhihu go up and down completely randomly.

Pair Corralation between HUTCHMED DRC and Zhihu

Considering the 90-day investment horizon HUTCHMED DRC is expected to under-perform the Zhihu. But the stock apears to be less risky and, when comparing its historical volatility, HUTCHMED DRC is 2.48 times less risky than Zhihu. The stock trades about -0.05 of its potential returns per unit of risk. The Zhihu Inc ADR is currently generating about 0.4 of returns per unit of risk over similar time horizon. If you would invest  347.00  in Zhihu Inc ADR on November 19, 2024 and sell it today you would earn a total of  185.00  from holding Zhihu Inc ADR or generate 53.31% return on investment over 90 days.

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

HUTCHMED DRC  vs.  Zhihu Inc ADR

HUTCHMED DRC

Risk-Adjusted Performance

Very Weak

Over the last 90 days HUTCHMED DRC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in March 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Zhihu Inc ADR

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Zhihu Inc ADR are ranked lower than 14 (%) 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 HUTCHMED DRC and Zhihu

The main advantage of trading using opposite HUTCHMED DRC and Zhihu positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HUTCHMED DRC 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 HUTCHMED DRC 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 Global Correlations module to find global opportunities by holding instruments from different markets.