Correlation Between Mesa Air and Zhihu

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

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

Diversification Opportunities for Mesa Air and Zhihu

-0.21

Correlation Coefficient

Mesa Air  Zhihu

Very good diversification

The 3 months correlation between Mesa and Zhihu is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Mesa Air Group 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 Mesa Air 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 Mesa Air Group 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 Mesa Air i.e., Mesa Air and Zhihu go up and down completely randomly.

Pair Corralation between Mesa Air and Zhihu

Given the investment horizon of 90 days Mesa Air is expected to generate 3.67 times less return on investment than Zhihu. In addition to that, Mesa Air is 1.09 times more volatile than Zhihu Inc ADR. It trades about 0.05 of its total potential returns per unit of risk. Zhihu Inc ADR is currently generating about 0.19 per unit of volatility. If you would invest  359.00  in Zhihu Inc ADR on November 29, 2024 and sell it today you would earn a total of  181.00  from holding Zhihu Inc ADR or generate 50.42% return on investment over 90 days.

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

Mesa Air Group  vs.  Zhihu Inc ADR

Mesa Air Group

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Mesa Air Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Mesa Air sustained solid returns over the last few months and may actually be approaching a breakup point.

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 15 (%) 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 Mesa Air and Zhihu

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

Check out your portfolio center.

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.