Correlation Between CHESS and Maker

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

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

Diversification Opportunities for CHESS and Maker

0.64

Correlation Coefficient

CHESS  Maker

Poor diversification

The 3 months correlation between CHESS and Maker is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding CHESS and Maker in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Maker and CHESS 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 CHESS are associated (or correlated) with Maker. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Maker has no effect on the direction of CHESS i.e., CHESS and Maker go up and down completely randomly.

Pair Corralation between CHESS and Maker

Assuming the 90 days trading horizon CHESS is expected to generate 1.35 times more return on investment than Maker. However, CHESS is 1.35 times more volatile than Maker. It trades about 0.11 of its potential returns per unit of risk. Maker is currently generating about 0.05 per unit of risk. If you would invest  16.00  in CHESS on September 2, 2024 and sell it today you would earn a total of  6.00  from holding CHESS or generate 37.5% return on investment over 90 days.

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

CHESS  vs.  Maker

CHESS

Risk-Adjusted Performance

8 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CHESS are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, CHESS exhibited solid returns over the last few months and may actually be approaching a breakup point.

Maker

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Maker are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Maker exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CHESS and Maker

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

The idea behind CHESS and Maker 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.