Correlation Between Zhihu and Modine Manufacturing

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

Diversification Opportunities for Zhihu and Modine Manufacturing

0.49

Correlation Coefficient

Zhihu  Modine Manufacturing

Very weak diversification

The 3 months correlation between Zhihu and Modine is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Zhihu Inc ADR and Modine Manufacturing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Modine Manufacturing 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 Modine Manufacturing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Modine Manufacturing has no effect on the direction of Zhihu i.e., Zhihu and Modine Manufacturing go up and down completely randomly.

Pair Corralation between Zhihu and Modine Manufacturing

Allowing for the 90-day total investment horizon Zhihu is expected to generate 1.98 times less return on investment than Modine Manufacturing. In addition to that, Zhihu is 1.13 times more volatile than Modine Manufacturing. It trades about 0.06 of its total potential returns per unit of risk. Modine Manufacturing is currently generating about 0.12 per unit of volatility. If you would invest  10,630  in Modine Manufacturing on September 4, 2024 and sell it today you would earn a total of  3,144  from holding Modine Manufacturing or generate 29.58% return on investment over 90 days.

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

Zhihu Inc ADR  vs.  Modine Manufacturing

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 unfluctuating technical indicators, Zhihu demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Modine Manufacturing

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Modine Manufacturing are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Modine Manufacturing exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zhihu and Modine Manufacturing

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

The idea behind Zhihu Inc ADR and Modine Manufacturing 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.