Correlation Between Fortune Brands and Chesapeake Utilities

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

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

Diversification Opportunities for Fortune Brands and Chesapeake Utilities

-0.59

Correlation Coefficient

Fortune Brands  Chesapeake Utilities

Excellent diversification

The 3 months correlation between Fortune and Chesapeake is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Fortune Brands Home and Chesapeake Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chesapeake Utilities and Fortune Brands 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 Fortune Brands Home are associated (or correlated) with Chesapeake Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chesapeake Utilities has no effect on the direction of Fortune Brands i.e., Fortune Brands and Chesapeake Utilities go up and down completely randomly.

Pair Corralation between Fortune Brands and Chesapeake Utilities

Assuming the 90 days horizon Fortune Brands Home is expected to under-perform the Chesapeake Utilities. In addition to that, Fortune Brands is 1.44 times more volatile than Chesapeake Utilities. It trades about -0.44 of its total potential returns per unit of risk. Chesapeake Utilities is currently generating about -0.4 per unit of volatility. If you would invest  12,338  in Chesapeake Utilities on October 4, 2024 and sell it today you would lose (838.00) from holding Chesapeake Utilities or give up 6.79% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Fortune Brands Home  vs.  Chesapeake Utilities

Fortune Brands Home

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fortune Brands Home has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Chesapeake Utilities

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Chesapeake Utilities are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Chesapeake Utilities is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Fortune Brands and Chesapeake Utilities

The main advantage of trading using opposite Fortune Brands and Chesapeake Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fortune Brands position performs unexpectedly, Chesapeake Utilities 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 Chesapeake Utilities will offset losses from the drop in Chesapeake Utilities' long position.

The idea behind Fortune Brands Home and Chesapeake Utilities 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.

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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 Commodity Directory module to find actively traded commodities issued by global exchanges.