Correlation Between Chuangs China and Acer Incorporated

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

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

Diversification Opportunities for Chuangs China and Acer Incorporated

-0.1

Correlation Coefficient

Chuangs China  Acer Incorporated

Good diversification

The 3 months correlation between Chuangs and Acer is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Chuangs China Investments and Acer Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Acer Incorporated and Chuangs China 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 Chuangs China Investments are associated (or correlated) with Acer Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Acer Incorporated has no effect on the direction of Chuangs China i.e., Chuangs China and Acer Incorporated go up and down completely randomly.

Pair Corralation between Chuangs China and Acer Incorporated

Assuming the 90 days horizon Chuangs China Investments is expected to under-perform the Acer Incorporated. But the stock apears to be less risky and, when comparing its historical volatility, Chuangs China Investments is 1.37 times less risky than Acer Incorporated. The stock trades about -0.01 of its potential returns per unit of risk. The Acer Incorporated is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  310.00  in Acer Incorporated on October 4, 2024 and sell it today you would earn a total of  150.00  from holding Acer Incorporated or generate 48.39% return on investment over 90 days.

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

Chuangs China Investments  vs.  Acer Incorporated

Chuangs China Investments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chuangs China Investments has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Chuangs China is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Acer Incorporated

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Acer Incorporated are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Acer Incorporated reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chuangs China and Acer Incorporated

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

The idea behind Chuangs China Investments and Acer Incorporated 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.