Correlation Between Zhihu and Meta Platforms

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

Diversification Opportunities for Zhihu and Meta Platforms

-0.79
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between Zhihu and Meta is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Zhihu Inc ADR and Meta Platforms in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meta Platforms 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 Meta Platforms. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meta Platforms has no effect on the direction of Zhihu i.e., Zhihu and Meta Platforms go up and down completely randomly.

Pair Corralation between Zhihu and Meta Platforms

Allowing for the 90-day total investment horizon Zhihu Inc ADR is expected to under-perform the Meta Platforms. In addition to that, Zhihu is 1.27 times more volatile than Meta Platforms. It trades about -0.01 of its total potential returns per unit of risk. Meta Platforms is currently generating about 0.24 per unit of volatility. If you would invest  32,448  in Meta Platforms on December 1, 2023 and sell it today you would earn a total of  16,404  from holding Meta Platforms or generate 50.56% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy98.36%
ValuesDaily Returns

Zhihu Inc ADR  vs.  Meta Platforms

 Performance 
       Timeline  
Zhihu Inc ADR 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Insignificant
Over the last 90 days Zhihu Inc ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical indicators, Zhihu is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.
Meta Platforms 

Risk-Adjusted Performance

18 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Meta Platforms are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Meta Platforms sustained solid returns over the last few months and may actually be approaching a breakup point.

Zhihu and Meta Platforms Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Zhihu and Meta Platforms

The main advantage of trading using opposite Zhihu and Meta Platforms positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Zhihu position performs unexpectedly, Meta Platforms 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 Meta Platforms will offset losses from the drop in Meta Platforms' long position.
The idea behind Zhihu Inc ADR and Meta Platforms 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.

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