Correlation Between CHP and EM

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

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

Diversification Opportunities for CHP and EM

0.0

Correlation Coefficient

CHP  EM

Pay attention - limited upside

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

Pair Corralation between CHP and EM

Assuming the 90 days trading horizon CHP is expected to generate 3.06 times more return on investment than EM. However, CHP is 3.06 times more volatile than EM. It trades about 0.01 of its potential returns per unit of risk. EM is currently generating about -0.08 per unit of risk. If you would invest  0.07  in CHP on September 1, 2024 and sell it today you would lose (0.07) from holding CHP or give up 94.89% of portfolio value over 90 days.

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

CHP  vs.  EM

CHP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CHP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's basic indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for CHP shareholders.

EM

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EM has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, EM is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with CHP and EM

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

The idea behind CHP and EM 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.