Correlation Between Scientific and Zhihu

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

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

Diversification Opportunities for Scientific and Zhihu

-0.02

Correlation Coefficient

Scientific  Zhihu

Good diversification

The 3 months correlation between Scientific and Zhihu is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Scientific Games International 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 Scientific 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 Scientific Games International 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 Scientific i.e., Scientific and Zhihu go up and down completely randomly.

Pair Corralation between Scientific and Zhihu

Assuming the 90 days trading horizon Scientific is expected to generate 403.14 times less return on investment than Zhihu. But when comparing it to its historical volatility, Scientific Games International is 14.36 times less risky than Zhihu. It trades about 0.0 of its potential returns per unit of risk. Zhihu Inc ADR is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  360.00  in Zhihu Inc ADR on December 25, 2024 and sell it today you would earn a total of  110.00  from holding Zhihu Inc ADR or generate 30.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	94.92%
Values	Daily Returns

Scientific Games International  vs.  Zhihu Inc ADR

Scientific Games Int

Risk-Adjusted Performance

Very Weak

Over the last 90 days Scientific Games International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Scientific is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the 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 9 (%) 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 Scientific and Zhihu

The main advantage of trading using opposite Scientific and Zhihu positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Scientific 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 Scientific Games International 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.