Correlation Between Maker and CHESS

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

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

Diversification Opportunities for Maker and CHESS

0.64

Correlation Coefficient

Maker  CHESS

Poor diversification

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

Pair Corralation between Maker and CHESS

Assuming the 90 days trading horizon Maker is expected to generate 2.64 times less return on investment than CHESS. But when comparing it to its historical volatility, Maker is 1.35 times less risky than CHESS. It trades about 0.05 of its potential returns per unit of risk. CHESS is currently generating about 0.11 of returns per unit of risk over similar time horizon. 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

Maker  vs.  CHESS

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.

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.

Pair Trading with Maker and CHESS

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

The idea behind Maker and CHESS 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.

Check out your portfolio center.

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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.