Correlation Between CHIU and CHIH

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

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

Diversification Opportunities for CHIU and CHIH

0.76

Correlation Coefficient

CHIU  CHIH

Poor diversification

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

Pair Corralation between CHIU and CHIH

Given the investment horizon of 90 days CHIU is expected to generate 0.71 times more return on investment than CHIH. However, CHIU is 1.41 times less risky than CHIH. It trades about -0.03 of its potential returns per unit of risk. CHIH is currently generating about -0.06 per unit of risk. 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

CHIU  vs.  CHIH

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.

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.

Pair Trading with CHIU and CHIH

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

The idea behind CHIU and CHIH 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.