Correlation Between System and ChipsMedia

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

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

Diversification Opportunities for System and ChipsMedia

-0.12

Correlation Coefficient

System  ChipsMedia

Good diversification

The 3 months correlation between System and ChipsMedia is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding System and Application and ChipsMedia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ChipsMedia and System 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 System and Application are associated (or correlated) with ChipsMedia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ChipsMedia has no effect on the direction of System i.e., System and ChipsMedia go up and down completely randomly.

Pair Corralation between System and ChipsMedia

Assuming the 90 days trading horizon System is expected to generate 23.33 times less return on investment than ChipsMedia. But when comparing it to its historical volatility, System and Application is 1.83 times less risky than ChipsMedia. It trades about 0.01 of its potential returns per unit of risk. ChipsMedia is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,485,000  in ChipsMedia on December 26, 2024 and sell it today you would earn a total of  300,000  from holding ChipsMedia or generate 20.2% return on investment over 90 days.

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

System and Application  vs.  ChipsMedia

System and Application

Risk-Adjusted Performance

Very Weak

Over the last 90 days System and Application has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, System is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

ChipsMedia

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ChipsMedia are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ChipsMedia sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with System and ChipsMedia

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

The idea behind System and Application and ChipsMedia 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.