Correlation Between Zhihu and NetEase

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

Diversification Opportunities for Zhihu and NetEase

0.8

Correlation Coefficient

Zhihu  NetEase

Very poor diversification

The 3 months correlation between Zhihu and NetEase is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Zhihu Inc ADR and NetEase in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetEase 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 NetEase. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NetEase has no effect on the direction of Zhihu i.e., Zhihu and NetEase go up and down completely randomly.

Pair Corralation between Zhihu and NetEase

Allowing for the 90-day total investment horizon Zhihu Inc ADR is expected to under-perform the NetEase. In addition to that, Zhihu is 1.72 times more volatile than NetEase. It trades about -0.02 of its total potential returns per unit of risk. NetEase is currently generating about 0.03 per unit of volatility. If you would invest  7,002  in NetEase on September 19, 2024 and sell it today you would earn a total of  2,138  from holding NetEase or generate 30.53% return on investment over 90 days.

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

Zhihu Inc ADR  vs.  NetEase

Zhihu Inc ADR

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Zhihu Inc ADR are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal technical indicators, Zhihu demonstrated solid returns over the last few months and may actually be approaching a breakup point.

NetEase

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NetEase are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, NetEase unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zhihu and NetEase

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

The idea behind Zhihu Inc ADR and NetEase 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.