Correlation Between Zhihu and Kuaishou Technology

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

Diversification Opportunities for Zhihu and Kuaishou Technology

0.74

Correlation Coefficient

Zhihu  Kuaishou Technology

Poor diversification

The 3 months correlation between Zhihu and Kuaishou is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Zhihu Inc ADR and Kuaishou Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kuaishou Technology 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 Kuaishou Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kuaishou Technology has no effect on the direction of Zhihu i.e., Zhihu and Kuaishou Technology go up and down completely randomly.

Pair Corralation between Zhihu and Kuaishou Technology

Allowing for the 90-day total investment horizon Zhihu is expected to generate 1.13 times less return on investment than Kuaishou Technology. But when comparing it to its historical volatility, Zhihu Inc ADR is 1.21 times less risky than Kuaishou Technology. It trades about 0.11 of its potential returns per unit of risk. Kuaishou Technology is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  108.00  in Kuaishou Technology on December 28, 2024 and sell it today you would earn a total of  34.00  from holding Kuaishou Technology or generate 31.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

Zhihu Inc ADR  vs.  Kuaishou Technology

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 8 (%) 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.

Kuaishou Technology

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kuaishou Technology are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Kuaishou Technology showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zhihu and Kuaishou Technology

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

The idea behind Zhihu Inc ADR and Kuaishou Technology 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.