Correlation Between Zhihu and Sea

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

Diversification Opportunities for Zhihu and Sea

-0.05

Correlation Coefficient

Zhihu  Sea

Good diversification

The 3 months correlation between Zhihu and Sea is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Zhihu Inc ADR and Sea in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sea 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 Sea. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sea has no effect on the direction of Zhihu i.e., Zhihu and Sea go up and down completely randomly.

Pair Corralation between Zhihu and Sea

Allowing for the 90-day total investment horizon Zhihu Inc ADR is expected to under-perform the Sea. In addition to that, Zhihu is 1.08 times more volatile than Sea. It trades about -0.32 of its total potential returns per unit of risk. Sea is currently generating about -0.18 per unit of volatility. If you would invest  11,415  in Sea on October 10, 2024 and sell it today you would lose (773.00) from holding Sea or give up 6.77% of portfolio value over 90 days.

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

Zhihu Inc ADR  vs.  Sea

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 latest unfluctuating performance, the Stock's technical indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Sea

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sea are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Sea may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Zhihu and Sea

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

The idea behind Zhihu Inc ADR and Sea 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.