Correlation Between Zhihu and Thomson Reuters

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

Diversification Opportunities for Zhihu and Thomson Reuters

0.78

Correlation Coefficient

Zhihu  Thomson Reuters

Poor diversification

The 3 months correlation between Zhihu and Thomson is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Zhihu Inc ADR and Thomson Reuters in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thomson Reuters 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 Thomson Reuters. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thomson Reuters has no effect on the direction of Zhihu i.e., Zhihu and Thomson Reuters go up and down completely randomly.

Pair Corralation between Zhihu and Thomson Reuters

Allowing for the 90-day total investment horizon Zhihu Inc ADR is expected to generate 3.51 times more return on investment than Thomson Reuters. However, Zhihu is 3.51 times more volatile than Thomson Reuters. It trades about 0.15 of its potential returns per unit of risk. Thomson Reuters is currently generating about 0.09 per unit of risk. If you would invest  363.00  in Zhihu Inc ADR on December 19, 2024 and sell it today you would earn a total of  146.00  from holding Zhihu Inc ADR or generate 40.22% return on investment over 90 days.

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

Zhihu Inc ADR  vs.  Thomson Reuters

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 11 (%) 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.

Thomson Reuters

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Thomson Reuters are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, Thomson Reuters may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Zhihu and Thomson Reuters

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

The idea behind Zhihu Inc ADR and Thomson Reuters 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.