Correlation Between CHP and MNW
Can any of the company-specific risk be diversified away by investing in both CHP and MNW 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 MNW into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CHP and MNW, you can compare the effects of market volatilities on CHP and MNW 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 MNW. Check out your portfolio center. Please also check ongoing floating volatility patterns of CHP and MNW.
Diversification Opportunities for CHP and MNW
Significant diversification
The 3 months correlation between CHP and MNW is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding CHP and MNW in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MNW 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 MNW. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MNW has no effect on the direction of CHP i.e., CHP and MNW go up and down completely randomly.
Pair Corralation between CHP and MNW
Assuming the 90 days trading horizon CHP is expected to generate 0.25 times more return on investment than MNW. However, CHP is 3.94 times less risky than MNW. It trades about -0.16 of its potential returns per unit of risk. MNW is currently generating about -0.21 per unit of risk. If you would invest 0.00 in CHP on November 8, 2024 and sell it today you would lose 0.00 from holding CHP or give up 18.18% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
CHP vs. MNW
Performance |
| Timeline |
| CHP |
| MNW |
CHP and MNW Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CHP and MNW
The main advantage of trading using opposite CHP and MNW positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CHP position performs unexpectedly, MNW 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 MNW will offset losses from the drop in MNW's long position.The idea behind CHP and MNW 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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