Correlation Between Zhihu and WEBTOON Entertainment

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

Diversification Opportunities for Zhihu and WEBTOON Entertainment

-0.07

Correlation Coefficient

Zhihu  WEBTOON Entertainment

Good diversification

The 3 months correlation between Zhihu and WEBTOON is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Zhihu Inc ADR and WEBTOON Entertainment Common in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WEBTOON Entertainment 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 WEBTOON Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WEBTOON Entertainment has no effect on the direction of Zhihu i.e., Zhihu and WEBTOON Entertainment go up and down completely randomly.

Pair Corralation between Zhihu and WEBTOON Entertainment

Allowing for the 90-day total investment horizon Zhihu is expected to generate 1.51 times less return on investment than WEBTOON Entertainment. In addition to that, Zhihu is 1.08 times more volatile than WEBTOON Entertainment Common. It trades about 0.11 of its total potential returns per unit of risk. WEBTOON Entertainment Common is currently generating about 0.18 per unit of volatility. If you would invest  1,104  in WEBTOON Entertainment Common on September 4, 2024 and sell it today you would earn a total of  158.00  from holding WEBTOON Entertainment Common or generate 14.31% return on investment over 90 days.

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

Zhihu Inc ADR  vs.  WEBTOON Entertainment Common

Zhihu Inc ADR

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Zhihu Inc ADR are ranked lower than 4 (%) 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.

WEBTOON Entertainment

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in WEBTOON Entertainment Common are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, WEBTOON Entertainment may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Zhihu and WEBTOON Entertainment

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

The idea behind Zhihu Inc ADR and WEBTOON Entertainment Common 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.