Correlation Between President Chain and Merida Industry

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

By analyzing existing cross correlation between President Chain Store and Merida Industry Co, you can compare the effects of market volatilities on President Chain and Merida Industry 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 President Chain with a short position of Merida Industry. Check out your portfolio center. Please also check ongoing floating volatility patterns of President Chain and Merida Industry.

Diversification Opportunities for President Chain and Merida Industry

0.85

Correlation Coefficient

President Chain  Merida Industry

Very poor diversification

The 3 months correlation between President and Merida is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding President Chain Store and Merida Industry Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merida Industry and President Chain 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 President Chain Store are associated (or correlated) with Merida Industry. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merida Industry has no effect on the direction of President Chain i.e., President Chain and Merida Industry go up and down completely randomly.

Pair Corralation between President Chain and Merida Industry

Assuming the 90 days trading horizon President Chain Store is expected to generate 0.54 times more return on investment than Merida Industry. However, President Chain Store is 1.84 times less risky than Merida Industry. It trades about -0.11 of its potential returns per unit of risk. Merida Industry Co is currently generating about -0.2 per unit of risk. If you would invest  29,200  in President Chain Store on September 14, 2024 and sell it today you would lose (2,400) from holding President Chain Store or give up 8.22% of portfolio value over 90 days.

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

President Chain Store  vs.  Merida Industry Co

President Chain Store

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days President Chain Store has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Merida Industry

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merida Industry Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with President Chain and Merida Industry

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

The idea behind President Chain Store and Merida Industry 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.