Correlation Between CHIH and CHIE

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

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

Diversification Opportunities for CHIH and CHIE

0.77

Correlation Coefficient

CHIH  CHIE

Poor diversification

The 3 months correlation between CHIH and CHIE is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding CHIH and CHIE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHIE and CHIH 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 CHIH are associated (or correlated) with CHIE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHIE has no effect on the direction of CHIH i.e., CHIH and CHIE go up and down completely randomly.

Pair Corralation between CHIH and CHIE

Given the investment horizon of 90 days CHIH is expected to under-perform the CHIE. In addition to that, CHIH is 1.2 times more volatile than CHIE. It trades about -0.06 of its total potential returns per unit of risk. CHIE is currently generating about 0.04 per unit of volatility. If you would invest  1,385  in CHIE on September 22, 2024 and sell it today you would earn a total of  95.00  from holding CHIE or generate 6.86% return on investment over 90 days.

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

CHIH  vs.  CHIE

CHIH

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CHIH has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward indicators, CHIH is not utilizing all of its potentials. The new stock price confusion, may contribute to short-horizon losses for the traders.

CHIE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CHIE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward indicators, CHIE is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with CHIH and CHIE

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

The idea behind CHIH and CHIE 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.