Correlation Between Zhihu and Autohome

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

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

Diversification Opportunities for Zhihu and Autohome

0.73

Correlation Coefficient

Zhihu  Autohome

Poor diversification

The 3 months correlation between Zhihu and Autohome is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Zhihu Inc ADR and Autohome in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Autohome and Zhihu 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 Zhihu Inc ADR are associated (or correlated) with Autohome. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Autohome has no effect on the direction of Zhihu i.e., Zhihu and Autohome go up and down completely randomly.

Pair Corralation between Zhihu and Autohome

Allowing for the 90-day total investment horizon Zhihu Inc ADR is expected to generate 2.0 times more return on investment than Autohome. However, Zhihu is 2.0 times more volatile than Autohome. It trades about 0.06 of its potential returns per unit of risk. Autohome is currently generating about 0.06 per unit of risk. If you would invest  336.00  in Zhihu Inc ADR on September 4, 2024 and sell it today you would earn a total of  34.00  from holding Zhihu Inc ADR or generate 10.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Zhihu Inc ADR  vs.  Autohome

Zhihu Inc ADR

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Zhihu Inc ADR are ranked lower than 4 (%) 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.

Autohome

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Autohome are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very weak technical indicators, Autohome may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Zhihu and Autohome

The main advantage of trading using opposite Zhihu and Autohome positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Zhihu position performs unexpectedly, Autohome 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 Autohome will offset losses from the drop in Autohome's long position.

The idea behind Zhihu Inc ADR and Autohome 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 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.