Correlation Between CHIX and CHII

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

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

Diversification Opportunities for CHIX and CHII

0.0

Correlation Coefficient

CHIX  CHII

Pay attention - limited upside

The 3 months correlation between CHIX and CHII is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding CHIX and CHII in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHII and CHIX 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 CHIX are associated (or correlated) with CHII. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHII has no effect on the direction of CHIX i.e., CHIX and CHII go up and down completely randomly.

Pair Corralation between CHIX and CHII

If you would invest (100.00) in CHII on December 26, 2024 and sell it today you would earn a total of  100.00  from holding CHII or generate -100.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

CHIX  vs.  CHII

CHIX

Risk-Adjusted Performance

Very Weak

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

CHII

Risk-Adjusted Performance

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 recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with CHIX and CHII

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

The idea behind CHIX and CHII 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.