Correlation Between CHIS and CHIH

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

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

Diversification Opportunities for CHIS and CHIH

0.9

Correlation Coefficient

CHIS  CHIH

Almost no diversification

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

Pair Corralation between CHIS and CHIH

Given the investment horizon of 90 days CHIS is expected to under-perform the CHIH. But the etf apears to be less risky and, when comparing its historical volatility, CHIS is 1.23 times less risky than CHIH. The etf trades about -0.06 of its potential returns per unit of risk. The CHIH is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  1,648  in CHIH on September 20, 2024 and sell it today you would lose (188.00) from holding CHIH or give up 11.41% of portfolio value over 90 days.

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

CHIS  vs.  CHIH

CHIS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CHIS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward indicators, CHIS is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

CHIH

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with CHIS and CHIH

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

The idea behind CHIS and CHIH 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.