Correlation Between Cheng Mei and CHO Pharma
Can any of the company-specific risk be diversified away by investing in both Cheng Mei and CHO Pharma 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 Cheng Mei and CHO Pharma into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cheng Mei Materials and CHO Pharma, you can compare the effects of market volatilities on Cheng Mei and CHO Pharma 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 Cheng Mei with a short position of CHO Pharma. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cheng Mei and CHO Pharma.
Diversification Opportunities for Cheng Mei and CHO Pharma
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Cheng and CHO is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Cheng Mei Materials and CHO Pharma in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHO Pharma and Cheng Mei 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 Cheng Mei Materials are associated (or correlated) with CHO Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHO Pharma has no effect on the direction of Cheng Mei i.e., Cheng Mei and CHO Pharma go up and down completely randomly.
Pair Corralation between Cheng Mei and CHO Pharma
Assuming the 90 days trading horizon Cheng Mei Materials is expected to under-perform the CHO Pharma. But the stock apears to be less risky and, when comparing its historical volatility, Cheng Mei Materials is 1.25 times less risky than CHO Pharma. The stock trades about -0.07 of its potential returns per unit of risk. The CHO Pharma is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest 5,380 in CHO Pharma on September 4, 2024 and sell it today you would lose (290.00) from holding CHO Pharma or give up 5.39% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cheng Mei Materials vs. CHO Pharma
Performance |
| Timeline |
| Cheng Mei Materials |
| CHO Pharma |
Cheng Mei and CHO Pharma Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cheng Mei and CHO Pharma
The main advantage of trading using opposite Cheng Mei and CHO Pharma positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cheng Mei position performs unexpectedly, CHO Pharma 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 CHO Pharma will offset losses from the drop in CHO Pharma's long position.| Cheng Mei vs. Taiwan Semiconductor Manufacturing | Cheng Mei vs. Yang Ming Marine | Cheng Mei vs. AU Optronics | Cheng Mei vs. Innolux Corp |
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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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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