Correlation Between Zhihu and Transocean

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

Diversification Opportunities for Zhihu and Transocean

-0.84

Correlation Coefficient

Zhihu  Transocean

Pay attention - limited upside

The 3 months correlation between Zhihu and Transocean is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding Zhihu Inc ADR and Transocean in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transocean 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 Transocean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transocean has no effect on the direction of Zhihu i.e., Zhihu and Transocean go up and down completely randomly.

Pair Corralation between Zhihu and Transocean

Allowing for the 90-day total investment horizon Zhihu Inc ADR is expected to generate 1.38 times more return on investment than Transocean. However, Zhihu is 1.38 times more volatile than Transocean. It trades about 0.1 of its potential returns per unit of risk. Transocean is currently generating about -0.03 per unit of risk. If you would invest  360.00  in Zhihu Inc ADR on December 20, 2024 and sell it today you would earn a total of  87.00  from holding Zhihu Inc ADR or generate 24.17% return on investment over 90 days.

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

Zhihu Inc ADR  vs.  Transocean

Zhihu Inc ADR

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Zhihu Inc ADR are ranked lower than 7 (%) 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.

Transocean

Risk-Adjusted Performance

Very Weak

Over the last 90 days Transocean has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, Transocean is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Zhihu and Transocean

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

The idea behind Zhihu Inc ADR and Transocean 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 Anywhere module to track or share privately all of your investments from the convenience of any device.