Correlation Between CHII and CHIM

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

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

Diversification Opportunities for CHII and CHIM

0.92

Correlation Coefficient

CHII  CHIM

Almost no diversification

The 3 months correlation between CHII and CHIM is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding CHII and CHIM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHIM and CHII 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 CHII are associated (or correlated) with CHIM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHIM has no effect on the direction of CHII i.e., CHII and CHIM go up and down completely randomly.

Pair Corralation between CHII and CHIM

If you would invest  1,644  in CHIM on September 5, 2024 and sell it today you would earn a total of  0.00  from holding CHIM or generate 0.0% return on investment over 90 days.

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

CHII  vs.  CHIM

CHII

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CHII has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward indicators, CHII is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

CHIM

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CHIM has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, CHIM is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with CHII and CHIM

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

The idea behind CHII and CHIM 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.