Correlation Between Holy Stone and Cheng Mei

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

By analyzing existing cross correlation between Holy Stone Enterprise and Cheng Mei Materials, you can compare the effects of market volatilities on Holy Stone and Cheng Mei 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 Holy Stone with a short position of Cheng Mei. Check out your portfolio center. Please also check ongoing floating volatility patterns of Holy Stone and Cheng Mei.

Diversification Opportunities for Holy Stone and Cheng Mei

-0.24

Correlation Coefficient

Holy Stone  Cheng Mei

Very good diversification

The 3 months correlation between Holy and Cheng is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Holy Stone Enterprise and Cheng Mei Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cheng Mei Materials and Holy Stone 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 Holy Stone Enterprise are associated (or correlated) with Cheng Mei. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cheng Mei Materials has no effect on the direction of Holy Stone i.e., Holy Stone and Cheng Mei go up and down completely randomly.

Pair Corralation between Holy Stone and Cheng Mei

Assuming the 90 days trading horizon Holy Stone Enterprise is expected to under-perform the Cheng Mei. But the stock apears to be less risky and, when comparing its historical volatility, Holy Stone Enterprise is 1.24 times less risky than Cheng Mei. The stock trades about -0.23 of its potential returns per unit of risk. The Cheng Mei Materials is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,295  in Cheng Mei Materials on October 9, 2024 and sell it today you would earn a total of  20.00  from holding Cheng Mei Materials or generate 1.54% return on investment over 90 days.

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

Holy Stone Enterprise  vs.  Cheng Mei Materials

Holy Stone Enterprise

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Holy Stone Enterprise 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.

Cheng Mei Materials

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cheng Mei Materials are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Cheng Mei 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 Holy Stone and Cheng Mei

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

The idea behind Holy Stone Enterprise and Cheng Mei Materials 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.