Correlation Between Zhihu and First Watch
Can any of the company-specific risk be diversified away by investing in both Zhihu and First Watch 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 First Watch 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 First Watch Restaurant, you can compare the effects of market volatilities on Zhihu and First Watch 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 First Watch. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhihu and First Watch.
Diversification Opportunities for Zhihu and First Watch
-0.35 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Zhihu and First is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Zhihu Inc ADR and First Watch Restaurant in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Watch Restaurant 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 First Watch. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Watch Restaurant has no effect on the direction of Zhihu i.e., Zhihu and First Watch go up and down completely randomly.
Pair Corralation between Zhihu and First Watch
Allowing for the 90-day total investment horizon Zhihu Inc ADR is expected to under-perform the First Watch. In addition to that, Zhihu is 1.35 times more volatile than First Watch Restaurant. It trades about -0.03 of its total potential returns per unit of risk. First Watch Restaurant is currently generating about 0.01 per unit of volatility. If you would invest 1,928 in First Watch Restaurant on September 3, 2024 and sell it today you would lose (42.00) from holding First Watch Restaurant or give up 2.18% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Zhihu Inc ADR vs. First Watch Restaurant
Performance |
| Timeline |
| Zhihu Inc ADR |
| First Watch Restaurant |
Zhihu and First Watch Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Zhihu and First Watch
The main advantage of trading using opposite Zhihu and First Watch positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Zhihu position performs unexpectedly, First Watch 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 First Watch will offset losses from the drop in First Watch's long position.The idea behind Zhihu Inc ADR and First Watch Restaurant 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.| First Watch vs. Highway Holdings Limited | First Watch vs. QCR Holdings | First Watch vs. Partner Communications | First Watch vs. Acumen Pharmaceuticals |
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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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