Correlation Between Zhihu and Datadog

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

Diversification Opportunities for Zhihu and Datadog

0.25

Correlation Coefficient

Zhihu  Datadog

Modest diversification

The 3 months correlation between Zhihu and Datadog is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Zhihu Inc ADR and Datadog in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Datadog 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 Datadog. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Datadog has no effect on the direction of Zhihu i.e., Zhihu and Datadog go up and down completely randomly.

Pair Corralation between Zhihu and Datadog

Allowing for the 90-day total investment horizon Zhihu is expected to generate 1.91 times less return on investment than Datadog. In addition to that, Zhihu is 1.96 times more volatile than Datadog. It trades about 0.06 of its total potential returns per unit of risk. Datadog is currently generating about 0.24 per unit of volatility. If you would invest  11,148  in Datadog on September 1, 2024 and sell it today you would earn a total of  4,127  from holding Datadog or generate 37.02% return on investment over 90 days.

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

Zhihu Inc ADR  vs.  Datadog

Zhihu Inc ADR

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Zhihu Inc ADR are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady technical indicators, Zhihu demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Datadog

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Datadog are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Datadog reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zhihu and Datadog

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

The idea behind Zhihu Inc ADR and Datadog 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.

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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.