Correlation Between Zhihu and GMS

Can any of the company-specific risk be diversified away by investing in both Zhihu and GMS 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 GMS 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 GMS Inc, you can compare the effects of market volatilities on Zhihu and GMS 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 GMS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhihu and GMS.

Diversification Opportunities for Zhihu and GMS

-0.66

Correlation Coefficient

Zhihu  GMS

Excellent diversification

The 3 months correlation between Zhihu and GMS is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Zhihu Inc ADR and GMS Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GMS Inc 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 GMS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GMS Inc has no effect on the direction of Zhihu i.e., Zhihu and GMS go up and down completely randomly.

Pair Corralation between Zhihu and GMS

Allowing for the 90-day total investment horizon Zhihu Inc ADR is expected to generate 2.79 times more return on investment than GMS. However, Zhihu is 2.79 times more volatile than GMS Inc. It trades about 0.12 of its potential returns per unit of risk. GMS Inc is currently generating about -0.16 per unit of risk. If you would invest  364.00  in Zhihu Inc ADR on December 22, 2024 and sell it today you would earn a total of  119.00  from holding Zhihu Inc ADR or generate 32.69% return on investment over 90 days.

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

Zhihu Inc ADR  vs.  GMS Inc

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.

GMS Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days GMS Inc 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 primary indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Zhihu and GMS

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

The idea behind Zhihu Inc ADR and GMS Inc 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.