Correlation Between Chesapeake Utilities and Auto Trader

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

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

Diversification Opportunities for Chesapeake Utilities and Auto Trader

-0.33

Correlation Coefficient

Chesapeake Utilities  Auto Trader

Very good diversification

The 3 months correlation between Chesapeake and Auto is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Chesapeake Utilities and Auto Trader Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Auto Trader Group and Chesapeake Utilities 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 Chesapeake Utilities are associated (or correlated) with Auto Trader. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Auto Trader Group has no effect on the direction of Chesapeake Utilities i.e., Chesapeake Utilities and Auto Trader go up and down completely randomly.

Pair Corralation between Chesapeake Utilities and Auto Trader

Assuming the 90 days horizon Chesapeake Utilities is expected to generate 2.91 times less return on investment than Auto Trader. But when comparing it to its historical volatility, Chesapeake Utilities is 1.08 times less risky than Auto Trader. It trades about 0.02 of its potential returns per unit of risk. Auto Trader Group is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  680.00  in Auto Trader Group on October 24, 2024 and sell it today you would earn a total of  255.00  from holding Auto Trader Group or generate 37.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Chesapeake Utilities  vs.  Auto Trader Group

Chesapeake Utilities

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chesapeake Utilities are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Chesapeake Utilities may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Auto Trader Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Auto Trader Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Chesapeake Utilities and Auto Trader

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

The idea behind Chesapeake Utilities and Auto Trader Group 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.