Correlation Between Zhihu and Unilever PLC

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

Diversification Opportunities for Zhihu and Unilever PLC

0.41

Correlation Coefficient

Zhihu  Unilever PLC

Very weak diversification

The 3 months correlation between Zhihu and Unilever is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Zhihu Inc ADR and Unilever PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unilever PLC ADR 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 Unilever PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Unilever PLC ADR has no effect on the direction of Zhihu i.e., Zhihu and Unilever PLC go up and down completely randomly.

Pair Corralation between Zhihu and Unilever PLC

Allowing for the 90-day total investment horizon Zhihu Inc ADR is expected to under-perform the Unilever PLC. In addition to that, Zhihu is 4.33 times more volatile than Unilever PLC ADR. It trades about -0.04 of its total potential returns per unit of risk. Unilever PLC ADR is currently generating about 0.04 per unit of volatility. If you would invest  4,749  in Unilever PLC ADR on October 12, 2024 and sell it today you would earn a total of  764.00  from holding Unilever PLC ADR or generate 16.09% return on investment over 90 days.

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

Zhihu Inc ADR  vs.  Unilever PLC ADR

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.

Unilever PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Unilever PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's essential indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Zhihu and Unilever PLC

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

The idea behind Zhihu Inc ADR and Unilever PLC ADR 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.