Correlation Between Zhihu and Nova Lithium

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

Diversification Opportunities for Zhihu and Nova Lithium

-0.33

Correlation Coefficient

Zhihu  Nova Lithium

Very good diversification

The 3 months correlation between Zhihu and Nova is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Zhihu Inc ADR and Nova Lithium Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nova Lithium Corp 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 Nova Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nova Lithium Corp has no effect on the direction of Zhihu i.e., Zhihu and Nova Lithium go up and down completely randomly.

Pair Corralation between Zhihu and Nova Lithium

Allowing for the 90-day total investment horizon Zhihu Inc ADR is expected to under-perform the Nova Lithium. But the stock apears to be less risky and, when comparing its historical volatility, Zhihu Inc ADR is 4.04 times less risky than Nova Lithium. The stock trades about -0.17 of its potential returns per unit of risk. The Nova Lithium Corp is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  25.00  in Nova Lithium Corp on October 25, 2024 and sell it today you would earn a total of  8.00  from holding Nova Lithium Corp or generate 32.0% 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.  Nova Lithium Corp

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 fairly strong technical indicators, Zhihu is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Nova Lithium Corp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nova Lithium Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak forward indicators, Nova Lithium reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zhihu and Nova Lithium

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

The idea behind Zhihu Inc ADR and Nova Lithium Corp 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.