Correlation Between Zhihu and Netflix

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

Diversification Opportunities for Zhihu and Netflix

-0.06

Correlation Coefficient

Zhihu  Netflix

Good diversification

The 3 months correlation between Zhihu and Netflix is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Zhihu Inc ADR and Netflix in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Netflix 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 Netflix. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Netflix has no effect on the direction of Zhihu i.e., Zhihu and Netflix go up and down completely randomly.

Pair Corralation between Zhihu and Netflix

Allowing for the 90-day total investment horizon Zhihu Inc ADR is expected to generate 1.37 times more return on investment than Netflix. However, Zhihu is 1.37 times more volatile than Netflix. It trades about -0.07 of its potential returns per unit of risk. Netflix is currently generating about -0.14 per unit of risk. If you would invest  71.00  in Zhihu Inc ADR on January 29, 2024 and sell it today you would lose (5.00) from holding Zhihu Inc ADR or give up 7.04% 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.  Netflix

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 abnormal performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in May 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Netflix

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Zhihu and Netflix

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

The idea behind Zhihu Inc ADR and Netflix 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.