Correlation Between Zhihu and Sonos

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

Diversification Opportunities for Zhihu and Sonos

-0.2

Correlation Coefficient

Zhihu  Sonos

Good diversification

The 3 months correlation between Zhihu and Sonos is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Zhihu Inc ADR and Sonos Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonos Inc 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 Sonos. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sonos Inc has no effect on the direction of Zhihu i.e., Zhihu and Sonos go up and down completely randomly.

Pair Corralation between Zhihu and Sonos

Allowing for the 90-day total investment horizon Zhihu Inc ADR is expected to under-perform the Sonos. In addition to that, Zhihu is 1.53 times more volatile than Sonos Inc. It trades about -0.02 of its total potential returns per unit of risk. Sonos Inc is currently generating about 0.0 per unit of volatility. If you would invest  1,664  in Sonos Inc on September 19, 2024 and sell it today you would lose (268.00) from holding Sonos Inc or give up 16.11% of portfolio value over 90 days.

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

Zhihu Inc ADR  vs.  Sonos Inc

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.

Sonos Inc

Risk-Adjusted Performance

6 of 100

OK

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

Pair Trading with Zhihu and Sonos

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

The idea behind Zhihu Inc ADR and Sonos Inc 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.