Correlation Between Zhihu and Meta Platforms

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

-0.69

Correlation Coefficient

Zhihu  Meta Platforms

Excellent diversification

The 3 months correlation between Zhihu and Meta is -0.69. 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 2.02 times more volatile than Meta Platforms. It trades about -0.08 of its total potential returns per unit of risk. Meta Platforms is currently generating about 0.07 per unit of volatility. If you would invest  43,219  in Meta Platforms on April 28, 2024 and sell it today you would earn a total of  3,351  from holding Meta Platforms or generate 7.75% return on investment over 90 days.

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

Zhihu Inc ADR  vs.  Meta Platforms

Zhihu Inc ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zhihu Inc ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in August 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Meta Platforms

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Meta Platforms are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Meta Platforms may actually be approaching a critical reversion point that can send shares even higher in August 2024.

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.

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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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.