Correlation Between CHP and SC
Can any of the company-specific risk be diversified away by investing in both CHP and SC 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 SC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CHP and SC, you can compare the effects of market volatilities on CHP and SC 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 SC. Check out your portfolio center. Please also check ongoing floating volatility patterns of CHP and SC.
Diversification Opportunities for CHP and SC
Very poor diversification
The 3 months correlation between CHP and SC is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding CHP and SC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SC 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 SC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SC has no effect on the direction of CHP i.e., CHP and SC go up and down completely randomly.
Pair Corralation between CHP and SC
Assuming the 90 days trading horizon CHP is expected to generate 4.3 times more return on investment than SC. However, CHP is 4.3 times more volatile than SC. It trades about 0.05 of its potential returns per unit of risk. SC is currently generating about 0.02 per unit of risk. If you would invest 0.52 in CHP on November 7, 2024 and sell it today you would lose (0.51) from holding CHP or give up 99.48% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
CHP vs. SC
Performance |
| Timeline |
| CHP |
| SC |
CHP and SC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CHP and SC
The main advantage of trading using opposite CHP and SC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CHP position performs unexpectedly, SC 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 SC will offset losses from the drop in SC's long position.The idea behind CHP and SC 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 Transaction History module to view history of all your transactions and understand their impact on performance.
Other Complementary Tools
| Top Crypto Exchanges Search and analyze digital assets across top global cryptocurrency exchanges | |
| Portfolio Manager State of the art Portfolio Manager to monitor and improve performance of your invested capital | |
| Price Exposure Probability Analyze equity upside and downside potential for a given time horizon across multiple markets | |
| Insider Screener Find insiders across different sectors to evaluate their impact on performance | |
| Balance Of Power Check stock momentum by analyzing Balance Of Power indicator and other technical ratios |