Correlation Between Zhihu and Weibo Corp

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

Diversification Opportunities for Zhihu and Weibo Corp

0.77

Correlation Coefficient

Zhihu  Weibo Corp

Poor diversification

The 3 months correlation between Zhihu and Weibo is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Zhihu Inc ADR and Weibo Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Weibo Corp 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 Weibo Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Weibo Corp has no effect on the direction of Zhihu i.e., Zhihu and Weibo Corp go up and down completely randomly.

Pair Corralation between Zhihu and Weibo Corp

Allowing for the 90-day total investment horizon Zhihu Inc ADR is expected to generate 1.74 times more return on investment than Weibo Corp. However, Zhihu is 1.74 times more volatile than Weibo Corp. It trades about 0.11 of its potential returns per unit of risk. Weibo Corp is currently generating about 0.03 per unit of risk. If you would invest  360.00  in Zhihu Inc ADR on December 26, 2024 and sell it today you would earn a total of  101.00  from holding Zhihu Inc ADR or generate 28.06% 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.  Weibo Corp

Zhihu Inc ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Zhihu Inc ADR are ranked lower than 8 (%) 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.

Weibo Corp

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Weibo Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, Weibo Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Zhihu and Weibo Corp

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

The idea behind Zhihu Inc ADR and Weibo Corp 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.