Correlation Between CHIH and CHIU

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

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

Diversification Opportunities for CHIH and CHIU

0.76

Correlation Coefficient

CHIH  CHIU

Poor diversification

The 3 months correlation between CHIH and CHIU is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding CHIH and CHIU in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHIU 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 CHIU. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHIU has no effect on the direction of CHIH i.e., CHIH and CHIU go up and down completely randomly.

Pair Corralation between CHIH and CHIU

Given the investment horizon of 90 days CHIH is expected to under-perform the CHIU. In addition to that, CHIH is 1.41 times more volatile than CHIU. It trades about -0.06 of its total potential returns per unit of risk. CHIU is currently generating about -0.03 per unit of volatility. If you would invest  1,470  in CHIU on September 22, 2024 and sell it today you would lose (81.00) from holding CHIU or give up 5.51% of portfolio value over 90 days.

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

CHIH  vs.  CHIU

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.

CHIU

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CHIU has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward indicators, CHIU is not utilizing all of its potentials. The new stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with CHIH and CHIU

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

The idea behind CHIH and CHIU 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.