Correlation Between Rai Way and Chesapeake Utilities

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

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

Diversification Opportunities for Rai Way and Chesapeake Utilities

-0.51

Correlation Coefficient

Rai Way  Chesapeake Utilities

Excellent diversification

The 3 months correlation between Rai and Chesapeake is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Rai Way SpA and Chesapeake Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chesapeake Utilities and Rai Way 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 Rai Way SpA 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 Rai Way i.e., Rai Way and Chesapeake Utilities go up and down completely randomly.

Pair Corralation between Rai Way and Chesapeake Utilities

Assuming the 90 days horizon Rai Way SpA is expected to under-perform the Chesapeake Utilities. But the stock apears to be less risky and, when comparing its historical volatility, Rai Way SpA is 1.26 times less risky than Chesapeake Utilities. The stock trades about -0.01 of its potential returns per unit of risk. The Chesapeake Utilities is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  10,837  in Chesapeake Utilities on September 12, 2024 and sell it today you would earn a total of  1,263  from holding Chesapeake Utilities or generate 11.65% return on investment over 90 days.

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

Rai Way SpA  vs.  Chesapeake Utilities

Rai Way SpA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rai Way SpA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Rai Way is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Chesapeake Utilities

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chesapeake Utilities are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Chesapeake Utilities may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Rai Way and Chesapeake Utilities

The main advantage of trading using opposite Rai Way and Chesapeake Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rai Way 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 Rai Way SpA 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.