Correlation Between Chestnut Street and American High-income

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

By analyzing existing cross correlation between Chestnut Street Exchange and American High Income Municipal, you can compare the effects of market volatilities on Chestnut Street and American High-income 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 Chestnut Street with a short position of American High-income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chestnut Street and American High-income.

Diversification Opportunities for Chestnut Street and American High-income

0.03

Correlation Coefficient

Chestnut Street  American High-income

Significant diversification

The 3 months correlation between Chestnut and American is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Chestnut Street Exchange and American High Income Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American High Income and Chestnut Street 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 Chestnut Street Exchange are associated (or correlated) with American High-income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American High Income has no effect on the direction of Chestnut Street i.e., Chestnut Street and American High-income go up and down completely randomly.

Pair Corralation between Chestnut Street and American High-income

Assuming the 90 days horizon Chestnut Street Exchange is expected to generate 2.43 times more return on investment than American High-income. However, Chestnut Street is 2.43 times more volatile than American High Income Municipal. It trades about 0.22 of its potential returns per unit of risk. American High Income Municipal is currently generating about 0.08 per unit of risk. If you would invest  108,897  in Chestnut Street Exchange on September 2, 2024 and sell it today you would earn a total of  9,795  from holding Chestnut Street Exchange or generate 8.99% return on investment over 90 days.

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

Chestnut Street Exchange  vs.  American High Income Municipal

Chestnut Street Exchange

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Chestnut Street Exchange are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Chestnut Street may actually be approaching a critical reversion point that can send shares even higher in January 2025.

American High Income

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in American High Income Municipal are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, American High-income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Chestnut Street and American High-income

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

The idea behind Chestnut Street Exchange and American High Income Municipal 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.