Correlation Between Zhihu and Summit Materials

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

Diversification Opportunities for Zhihu and Summit Materials

0.54

Correlation Coefficient

Zhihu  Summit Materials

Very weak diversification

The 3 months correlation between Zhihu and Summit is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Zhihu Inc ADR and Summit Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Summit Materials 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 Summit Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Summit Materials has no effect on the direction of Zhihu i.e., Zhihu and Summit Materials go up and down completely randomly.

Pair Corralation between Zhihu and Summit Materials

Allowing for the 90-day total investment horizon Zhihu Inc ADR is expected to generate 11.02 times more return on investment than Summit Materials. However, Zhihu is 11.02 times more volatile than Summit Materials. It trades about 0.17 of its potential returns per unit of risk. Summit Materials is currently generating about 0.2 per unit of risk. If you would invest  389.00  in Zhihu Inc ADR on December 10, 2024 and sell it today you would earn a total of  181.00  from holding Zhihu Inc ADR or generate 46.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	70.0%
Values	Daily Returns

Zhihu Inc ADR  vs.  Summit Materials

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 13 (%) 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.

Summit Materials

Risk-Adjusted Performance

Good

Over the last 90 days Summit Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Summit Materials is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Zhihu and Summit Materials

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

The idea behind Zhihu Inc ADR and Summit Materials 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.