Correlation Between Zhihu and Zillow

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

Diversification Opportunities for Zhihu and Zillow

0.05

Correlation Coefficient

Zhihu  Zillow

Significant diversification

The 3 months correlation between Zhihu and Zillow is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Zhihu Inc ADR and Zillow Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zillow Group 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 Zillow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zillow Group has no effect on the direction of Zhihu i.e., Zhihu and Zillow go up and down completely randomly.

Pair Corralation between Zhihu and Zillow

Allowing for the 90-day total investment horizon Zhihu is expected to generate 1.73 times less return on investment than Zillow. In addition to that, Zhihu is 1.05 times more volatile than Zillow Group. It trades about 0.07 of its total potential returns per unit of risk. Zillow Group is currently generating about 0.13 per unit of volatility. If you would invest  4,655  in Zillow Group on September 12, 2024 and sell it today you would earn a total of  3,224  from holding Zillow Group or generate 69.26% return on investment over 90 days.

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

Zhihu Inc ADR  vs.  Zillow Group

Zhihu Inc ADR

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Zhihu Inc ADR are ranked lower than 6 (%) 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.

Zillow Group

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Zillow Group are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent technical and fundamental indicators, Zillow reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zhihu and Zillow

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

The idea behind Zhihu Inc ADR and Zillow Group 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.