Correlation Between CHIS and CHIM

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

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

Diversification Opportunities for CHIS and CHIM

0.93

Correlation Coefficient

CHIS  CHIM

Almost no diversification

The 3 months correlation between CHIS and CHIM is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding CHIS and CHIM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHIM 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 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 CHIS i.e., CHIS and CHIM go up and down completely randomly.

Pair Corralation between CHIS and CHIM

Given the investment horizon of 90 days CHIS is expected to generate 0.61 times more return on investment than CHIM. However, CHIS is 1.63 times less risky than CHIM. It trades about -0.06 of its potential returns per unit of risk. CHIM is currently generating about -0.07 per unit of risk. If you would invest  2,246  in CHIS on September 20, 2024 and sell it today you would lose (265.00) from holding CHIS or give up 11.8% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.3%
Values	Daily Returns

CHIS  vs.  CHIM

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.

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 recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with CHIS and CHIM

The main advantage of trading using opposite CHIS and CHIM positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CHIS 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 CHIS 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.

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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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.