Correlation Between CHP and GSC
Can any of the company-specific risk be diversified away by investing in both CHP and GSC 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 CHP and GSC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CHP and GSC, you can compare the effects of market volatilities on CHP and GSC 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 CHP with a short position of GSC. Check out your portfolio center. Please also check ongoing floating volatility patterns of CHP and GSC.
Diversification Opportunities for CHP and GSC
Good diversification
The 3 months correlation between CHP and GSC is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding CHP and GSC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GSC and CHP 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 CHP are associated (or correlated) with GSC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GSC has no effect on the direction of CHP i.e., CHP and GSC go up and down completely randomly.
Pair Corralation between CHP and GSC
Assuming the 90 days trading horizon CHP is expected to generate 16.48 times more return on investment than GSC. However, CHP is 16.48 times more volatile than GSC. It trades about 0.08 of its potential returns per unit of risk. GSC is currently generating about 0.13 per unit of risk. If you would invest 0.36 in CHP on August 25, 2024 and sell it today you would lose (0.36) from holding CHP or give up 99.05% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 55.33% |
| Values | Daily Returns |
CHP vs. GSC
Performance |
| Timeline |
| CHP |
| GSC |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
CHP and GSC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CHP and GSC
The main advantage of trading using opposite CHP and GSC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CHP position performs unexpectedly, GSC 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 GSC will offset losses from the drop in GSC's long position.The idea behind CHP and GSC 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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