Correlation Between Pou Chen and CMC Magnetics

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

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

Diversification Opportunities for Pou Chen and CMC Magnetics

-0.48

Correlation Coefficient

Pou Chen  CMC Magnetics

Very good diversification

The 3 months correlation between Pou and CMC is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Pou Chen Corp and CMC Magnetics Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMC Magnetics Corp and Pou Chen 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 Pou Chen Corp are associated (or correlated) with CMC Magnetics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CMC Magnetics Corp has no effect on the direction of Pou Chen i.e., Pou Chen and CMC Magnetics go up and down completely randomly.

Pair Corralation between Pou Chen and CMC Magnetics

Assuming the 90 days trading horizon Pou Chen is expected to generate 1.61 times less return on investment than CMC Magnetics. But when comparing it to its historical volatility, Pou Chen Corp is 1.45 times less risky than CMC Magnetics. It trades about 0.04 of its potential returns per unit of risk. CMC Magnetics Corp is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  770.00  in CMC Magnetics Corp on September 5, 2024 and sell it today you would earn a total of  375.00  from holding CMC Magnetics Corp or generate 48.7% return on investment over 90 days.

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

Pou Chen Corp  vs.  CMC Magnetics Corp

Pou Chen Corp

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pou Chen Corp are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Pou Chen showed solid returns over the last few months and may actually be approaching a breakup point.

CMC Magnetics Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Pou Chen and CMC Magnetics

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

The idea behind Pou Chen Corp and CMC Magnetics Corp 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.