Correlation Between Chuangs China and Tri Pointe

Can any of the company-specific risk be diversified away by investing in both Chuangs China and Tri Pointe 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 Tri Pointe 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 Tri Pointe Homes, you can compare the effects of market volatilities on Chuangs China and Tri Pointe 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 Tri Pointe. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chuangs China and Tri Pointe.

Diversification Opportunities for Chuangs China and Tri Pointe

0.03

Correlation Coefficient

Chuangs China  Tri Pointe

Significant diversification

The 3 months correlation between Chuangs and Tri is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Chuangs China Investments and Tri Pointe Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tri Pointe Homes 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 Tri Pointe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tri Pointe Homes has no effect on the direction of Chuangs China i.e., Chuangs China and Tri Pointe go up and down completely randomly.

Pair Corralation between Chuangs China and Tri Pointe

Assuming the 90 days horizon Chuangs China is expected to generate 2.24 times less return on investment than Tri Pointe. In addition to that, Chuangs China is 2.68 times more volatile than Tri Pointe Homes. It trades about 0.01 of its total potential returns per unit of risk. Tri Pointe Homes is currently generating about 0.04 per unit of volatility. If you would invest  2,880  in Tri Pointe Homes on October 5, 2024 and sell it today you would earn a total of  540.00  from holding Tri Pointe Homes or generate 18.75% return on investment over 90 days.

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

Chuangs China Investments  vs.  Tri Pointe Homes

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.

Tri Pointe Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tri Pointe Homes has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Chuangs China and Tri Pointe

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

The idea behind Chuangs China Investments and Tri Pointe Homes 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.