Correlation Between Toro and Zhihu

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

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

Diversification Opportunities for Toro and Zhihu

0.21

Correlation Coefficient

Toro  Zhihu

Modest diversification

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

Pair Corralation between Toro and Zhihu

Considering the 90-day investment horizon Toro Co is expected to generate 0.43 times more return on investment than Zhihu. However, Toro Co is 2.31 times less risky than Zhihu. It trades about -0.01 of its potential returns per unit of risk. Zhihu Inc ADR is currently generating about -0.02 per unit of risk. If you would invest  10,971  in Toro Co on September 13, 2024 and sell it today you would lose (2,198) from holding Toro Co or give up 20.03% of portfolio value over 90 days.

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

Toro Co  vs.  Zhihu Inc ADR

Toro

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Toro Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Toro is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Zhihu Inc ADR

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Zhihu Inc ADR are ranked lower than 5 (%) 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 Toro and Zhihu

The main advantage of trading using opposite Toro and Zhihu positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Toro 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 Toro Co 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.