Correlation Between President Chain and Holiday Entertainment

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

Diversification Opportunities for President Chain and Holiday Entertainment

0.9

Correlation Coefficient

President Chain  Holiday Entertainment

Almost no diversification

The 3 months correlation between President and Holiday is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding President Chain Store and Holiday Entertainment Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Holiday Entertainment 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 Holiday Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Holiday Entertainment has no effect on the direction of President Chain i.e., President Chain and Holiday Entertainment go up and down completely randomly.

Pair Corralation between President Chain and Holiday Entertainment

Assuming the 90 days trading horizon President Chain is expected to generate 7.59 times less return on investment than Holiday Entertainment. But when comparing it to its historical volatility, President Chain Store is 1.59 times less risky than Holiday Entertainment. It trades about 0.01 of its potential returns per unit of risk. Holiday Entertainment Co is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  6,170  in Holiday Entertainment Co on September 26, 2024 and sell it today you would earn a total of  1,740  from holding Holiday Entertainment Co or generate 28.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.79%
Values	Daily Returns

President Chain Store  vs.  Holiday Entertainment 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.

Holiday Entertainment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Holiday Entertainment Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Holiday Entertainment 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 President Chain and Holiday Entertainment

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

The idea behind President Chain Store and Holiday Entertainment 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.