Correlation Between Zhihu and NATIONAL

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

Diversification Opportunities for Zhihu and NATIONAL

0.02

Correlation Coefficient

Zhihu  NATIONAL

Significant diversification

The 3 months correlation between Zhihu and NATIONAL is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Zhihu Inc ADR and NATIONAL RURAL UTILS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NATIONAL RURAL UTILS 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 NATIONAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NATIONAL RURAL UTILS has no effect on the direction of Zhihu i.e., Zhihu and NATIONAL go up and down completely randomly.

Pair Corralation between Zhihu and NATIONAL

Allowing for the 90-day total investment horizon Zhihu Inc ADR is expected to generate 5.55 times more return on investment than NATIONAL. However, Zhihu is 5.55 times more volatile than NATIONAL RURAL UTILS. It trades about 0.15 of its potential returns per unit of risk. NATIONAL RURAL UTILS is currently generating about -0.13 per unit of risk. If you would invest  370.00  in Zhihu Inc ADR on December 1, 2024 and sell it today you would earn a total of  141.00  from holding Zhihu Inc ADR or generate 38.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	73.33%
Values	Daily Returns

Zhihu Inc ADR  vs.  NATIONAL RURAL UTILS

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 12 (%) 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.

NATIONAL RURAL UTILS

Risk-Adjusted Performance

Very Weak

Over the last 90 days NATIONAL RURAL UTILS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, NATIONAL is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Zhihu and NATIONAL

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

The idea behind Zhihu Inc ADR and NATIONAL RURAL UTILS 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.