Correlation Between Power Wind and Chernan Metal

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

By analyzing existing cross correlation between Power Wind Health and Chernan Metal Industrial, you can compare the effects of market volatilities on Power Wind and Chernan Metal 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 Power Wind with a short position of Chernan Metal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Power Wind and Chernan Metal.

Diversification Opportunities for Power Wind and Chernan Metal

0.79

Correlation Coefficient

Power Wind  Chernan Metal

Poor diversification

The 3 months correlation between Power and Chernan is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Power Wind Health and Chernan Metal Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chernan Metal Industrial and Power Wind 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 Power Wind Health are associated (or correlated) with Chernan Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chernan Metal Industrial has no effect on the direction of Power Wind i.e., Power Wind and Chernan Metal go up and down completely randomly.

Pair Corralation between Power Wind and Chernan Metal

Assuming the 90 days trading horizon Power Wind Health is expected to under-perform the Chernan Metal. But the stock apears to be less risky and, when comparing its historical volatility, Power Wind Health is 1.47 times less risky than Chernan Metal. The stock trades about -0.23 of its potential returns per unit of risk. The Chernan Metal Industrial is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  4,645  in Chernan Metal Industrial on September 14, 2024 and sell it today you would lose (520.00) from holding Chernan Metal Industrial or give up 11.19% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Power Wind Health  vs.  Chernan Metal Industrial

Power Wind Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Power Wind Health 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.

Chernan Metal Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chernan Metal Industrial 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.

Pair Trading with Power Wind and Chernan Metal

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

The idea behind Power Wind Health and Chernan Metal Industrial 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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.