Correlation Between YY and Zhihu

Can any of the company-specific risk be diversified away by investing in both YY and Zhihu 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 YY and Zhihu into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between YY Inc Class and Zhihu Inc ADR, you can compare the effects of market volatilities on YY and Zhihu 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 YY with a short position of Zhihu. Check out your portfolio center. Please also check ongoing floating volatility patterns of YY and Zhihu.

Diversification Opportunities for YY and Zhihu

0.89

Correlation Coefficient

YY  Zhihu

Very poor diversification

The 3 months correlation between YY and Zhihu is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding YY Inc Class and Zhihu Inc ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhihu Inc ADR and YY 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 YY Inc Class are associated (or correlated) with Zhihu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhihu Inc ADR has no effect on the direction of YY i.e., YY and Zhihu go up and down completely randomly.

Pair Corralation between YY and Zhihu

Allowing for the 90-day total investment horizon YY Inc Class is expected to generate 0.64 times more return on investment than Zhihu. However, YY Inc Class is 1.57 times less risky than Zhihu. It trades about 0.05 of its potential returns per unit of risk. Zhihu Inc ADR is currently generating about 0.0 per unit of risk. If you would invest  2,760  in YY Inc Class on February 8, 2025 and sell it today you would earn a total of  1,441  from holding YY Inc Class or generate 52.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.59%
Values	Daily Returns

YY Inc Class  vs.  Zhihu Inc ADR

YY Inc Class

Risk-Adjusted Performance

Very Weak

Over the last 90 days YY Inc Class has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, YY is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Zhihu Inc ADR

Risk-Adjusted Performance

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 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.

Pair Trading with YY and Zhihu

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

The idea behind YY Inc Class and Zhihu Inc ADR 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.