Correlation Between Zhihu and Lumen Technologies

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

Diversification Opportunities for Zhihu and Lumen Technologies

-0.34

Correlation Coefficient

Zhihu  Lumen Technologies

Very good diversification

The 3 months correlation between Zhihu and Lumen is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Zhihu Inc ADR and Lumen Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lumen Technologies 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 Lumen Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lumen Technologies has no effect on the direction of Zhihu i.e., Zhihu and Lumen Technologies go up and down completely randomly.

Pair Corralation between Zhihu and Lumen Technologies

Allowing for the 90-day total investment horizon Zhihu Inc ADR is expected to under-perform the Lumen Technologies. But the stock apears to be less risky and, when comparing its historical volatility, Zhihu Inc ADR is 1.7 times less risky than Lumen Technologies. The stock trades about -0.03 of its potential returns per unit of risk. The Lumen Technologies is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  559.00  in Lumen Technologies on October 7, 2024 and sell it today you would earn a total of  7.00  from holding Lumen Technologies or generate 1.25% return on investment over 90 days.

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

Zhihu Inc ADR  vs.  Lumen Technologies

Zhihu Inc ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zhihu Inc ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in February 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Lumen Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lumen Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Lumen Technologies is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Zhihu and Lumen Technologies

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

The idea behind Zhihu Inc ADR and Lumen Technologies 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.