Correlation Between Cosmos and CHESS

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

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

Diversification Opportunities for Cosmos and CHESS

0.82

Correlation Coefficient

Cosmos  CHESS

Very poor diversification

The 3 months correlation between Cosmos and CHESS is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Cosmos and CHESS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHESS and Cosmos 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 Cosmos 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 Cosmos i.e., Cosmos and CHESS go up and down completely randomly.

Pair Corralation between Cosmos and CHESS

Assuming the 90 days trading horizon Cosmos is expected to generate 0.66 times more return on investment than CHESS. However, Cosmos is 1.51 times less risky than CHESS. It trades about -0.28 of its potential returns per unit of risk. CHESS is currently generating about -0.21 per unit of risk. If you would invest  1,221  in Cosmos on January 25, 2024 and sell it today you would lose (350.00) from holding Cosmos or give up 28.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Cosmos  vs.  CHESS

Cosmos

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cosmos has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Cosmos is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

CHESS

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CHESS are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, CHESS exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cosmos and CHESS

The main advantage of trading using opposite Cosmos and CHESS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cosmos 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 Cosmos 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..