Correlation Between Chesapeake Utilities and TT Electronics

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

By analyzing existing cross correlation between Chesapeake Utilities and TT Electronics PLC, you can compare the effects of market volatilities on Chesapeake Utilities and TT Electronics 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 TT Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chesapeake Utilities and TT Electronics.

Diversification Opportunities for Chesapeake Utilities and TT Electronics

0.63

Correlation Coefficient

Chesapeake Utilities  TT Electronics

Poor diversification

The 3 months correlation between Chesapeake and 7TT is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Chesapeake Utilities and TT Electronics PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TT Electronics PLC 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 TT Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TT Electronics PLC has no effect on the direction of Chesapeake Utilities i.e., Chesapeake Utilities and TT Electronics go up and down completely randomly.

Pair Corralation between Chesapeake Utilities and TT Electronics

Assuming the 90 days horizon Chesapeake Utilities is expected to generate 0.45 times more return on investment than TT Electronics. However, Chesapeake Utilities is 2.21 times less risky than TT Electronics. It trades about 0.04 of its potential returns per unit of risk. TT Electronics PLC is currently generating about -0.02 per unit of risk. If you would invest  9,765  in Chesapeake Utilities on October 4, 2024 and sell it today you would earn a total of  1,735  from holding Chesapeake Utilities or generate 17.77% return on investment over 90 days.

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

Chesapeake Utilities  vs.  TT Electronics PLC

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.

TT Electronics PLC

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in TT Electronics PLC are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, TT Electronics unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chesapeake Utilities and TT Electronics

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

The idea behind Chesapeake Utilities and TT Electronics PLC 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.