Correlation Between Palomar Holdings and Zhihu

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

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

Diversification Opportunities for Palomar Holdings and Zhihu

0.05

Correlation Coefficient

Palomar Holdings  Zhihu

Significant diversification

The 3 months correlation between Palomar and Zhihu is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Palomar Holdings 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 Palomar Holdings 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 Palomar Holdings 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 Palomar Holdings i.e., Palomar Holdings and Zhihu go up and down completely randomly.

Pair Corralation between Palomar Holdings and Zhihu

Given the investment horizon of 90 days Palomar Holdings is expected to under-perform the Zhihu. But the stock apears to be less risky and, when comparing its historical volatility, Palomar Holdings is 1.36 times less risky than Zhihu. The stock trades about -0.07 of its potential returns per unit of risk. The Zhihu Inc ADR is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  360.00  in Zhihu Inc ADR on September 27, 2024 and sell it today you would earn a total of  0.00  from holding Zhihu Inc ADR or generate 0.0% return on investment over 90 days.

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

Palomar Holdings  vs.  Zhihu Inc ADR

Palomar Holdings

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Palomar Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating primary indicators, Palomar Holdings may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 fairly strong technical indicators, Zhihu is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Palomar Holdings and Zhihu

The main advantage of trading using opposite Palomar Holdings and Zhihu positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Palomar Holdings 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 Palomar Holdings 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.