Correlation Between CHC Healthcare and Promise Technology

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

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

Diversification Opportunities for CHC Healthcare and Promise Technology

0.33

Correlation Coefficient

CHC Healthcare  Promise Technology

Weak diversification

The 3 months correlation between CHC and Promise is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding CHC Healthcare Group and Promise Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Promise Technology and CHC Healthcare 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 CHC Healthcare Group are associated (or correlated) with Promise Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Promise Technology has no effect on the direction of CHC Healthcare i.e., CHC Healthcare and Promise Technology go up and down completely randomly.

Pair Corralation between CHC Healthcare and Promise Technology

Assuming the 90 days trading horizon CHC Healthcare Group is expected to generate 1.57 times more return on investment than Promise Technology. However, CHC Healthcare is 1.57 times more volatile than Promise Technology. It trades about -0.05 of its potential returns per unit of risk. Promise Technology is currently generating about -0.11 per unit of risk. If you would invest  4,320  in CHC Healthcare Group on September 23, 2024 and sell it today you would lose (305.00) from holding CHC Healthcare Group or give up 7.06% of portfolio value over 90 days.

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

CHC Healthcare Group  vs.  Promise Technology

CHC Healthcare Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CHC Healthcare Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, CHC Healthcare is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Promise Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Promise Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with CHC Healthcare and Promise Technology

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

The idea behind CHC Healthcare Group and Promise Technology 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.