Correlation Between Zhihu and National CineMedia
Can any of the company-specific risk be diversified away by investing in both Zhihu and National CineMedia 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 National CineMedia 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 National CineMedia, you can compare the effects of market volatilities on Zhihu and National CineMedia 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 National CineMedia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhihu and National CineMedia.
Diversification Opportunities for Zhihu and National CineMedia
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Zhihu and National is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Zhihu Inc ADR and National CineMedia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National CineMedia 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 National CineMedia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National CineMedia has no effect on the direction of Zhihu i.e., Zhihu and National CineMedia go up and down completely randomly.
Pair Corralation between Zhihu and National CineMedia
Allowing for the 90-day total investment horizon Zhihu Inc ADR is expected to under-perform the National CineMedia. But the stock apears to be less risky and, when comparing its historical volatility, Zhihu Inc ADR is 1.69 times less risky than National CineMedia. The stock trades about -0.22 of its potential returns per unit of risk. The National CineMedia is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 674.00 in National CineMedia on October 20, 2024 and sell it today you would earn a total of 6.00 from holding National CineMedia or generate 0.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Zhihu Inc ADR vs. National CineMedia
Performance |
| Timeline |
| Zhihu Inc ADR |
| National CineMedia |
Zhihu and National CineMedia Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Zhihu and National CineMedia
The main advantage of trading using opposite Zhihu and National CineMedia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Zhihu position performs unexpectedly, National CineMedia 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 National CineMedia will offset losses from the drop in National CineMedia's long position.The idea behind Zhihu Inc ADR and National CineMedia 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.| National CineMedia vs. MGO Global Common | National CineMedia vs. Baosheng Media Group | National CineMedia vs. Glory Star New | National CineMedia vs. Impact Fusion International |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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