Correlation Between Chia Her and Hotai

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

By analyzing existing cross correlation between Chia Her Industrial and Hotai Motor Co, you can compare the effects of market volatilities on Chia Her and Hotai 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 Chia Her with a short position of Hotai. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chia Her and Hotai.

Diversification Opportunities for Chia Her and Hotai

-0.6

Correlation Coefficient

Chia Her  Hotai

Excellent diversification

The 3 months correlation between Chia and Hotai is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Chia Her Industrial and Hotai Motor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hotai Motor and Chia Her 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 Chia Her Industrial are associated (or correlated) with Hotai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hotai Motor has no effect on the direction of Chia Her i.e., Chia Her and Hotai go up and down completely randomly.

Pair Corralation between Chia Her and Hotai

Assuming the 90 days trading horizon Chia Her Industrial is expected to generate 3.08 times more return on investment than Hotai. However, Chia Her is 3.08 times more volatile than Hotai Motor Co. It trades about 0.12 of its potential returns per unit of risk. Hotai Motor Co is currently generating about -0.04 per unit of risk. If you would invest  1,812  in Chia Her Industrial on September 13, 2024 and sell it today you would earn a total of  553.00  from holding Chia Her Industrial or generate 30.52% return on investment over 90 days.

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

Chia Her Industrial  vs.  Hotai Motor Co

Chia Her Industrial

Risk-Adjusted Performance

9 of 100

OK

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

Hotai Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hotai Motor Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Hotai is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Chia Her and Hotai

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

The idea behind Chia Her Industrial and Hotai Motor Co 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.