Correlation Between Cheng Mei and Holy Stone

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

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

Diversification Opportunities for Cheng Mei and Holy Stone

-0.58

Correlation Coefficient

Cheng Mei  Holy Stone

Excellent diversification

The 3 months correlation between Cheng and Holy is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Cheng Mei Materials and Holy Stone Enterprise in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Holy Stone Enterprise and Cheng Mei 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 Cheng Mei Materials are associated (or correlated) with Holy Stone. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Holy Stone Enterprise has no effect on the direction of Cheng Mei i.e., Cheng Mei and Holy Stone go up and down completely randomly.

Pair Corralation between Cheng Mei and Holy Stone

Assuming the 90 days trading horizon Cheng Mei Materials is expected to generate 1.82 times more return on investment than Holy Stone. However, Cheng Mei is 1.82 times more volatile than Holy Stone Enterprise. It trades about 0.08 of its potential returns per unit of risk. Holy Stone Enterprise is currently generating about -0.1 per unit of risk. If you would invest  1,295  in Cheng Mei Materials on October 24, 2024 and sell it today you would earn a total of  80.00  from holding Cheng Mei Materials or generate 6.18% return on investment over 90 days.

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

Cheng Mei Materials  vs.  Holy Stone Enterprise

Cheng Mei Materials

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cheng Mei Materials are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Cheng Mei may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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 fairly stable basic indicators, Holy Stone is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Cheng Mei and Holy Stone

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

The idea behind Cheng Mei Materials and Holy Stone Enterprise 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.