Correlation Between Chesapeake Utilities and Universal Entertainment

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

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

Diversification Opportunities for Chesapeake Utilities and Universal Entertainment

-0.8

Correlation Coefficient

Chesapeake Utilities  Universal Entertainment

Pay attention - limited upside

The 3 months correlation between Chesapeake and Universal is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Chesapeake Utilities and Universal Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Entertainment 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 Universal Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Entertainment has no effect on the direction of Chesapeake Utilities i.e., Chesapeake Utilities and Universal Entertainment go up and down completely randomly.

Pair Corralation between Chesapeake Utilities and Universal Entertainment

Assuming the 90 days horizon Chesapeake Utilities is expected to generate 0.44 times more return on investment than Universal Entertainment. However, Chesapeake Utilities is 2.29 times less risky than Universal Entertainment. It trades about 0.19 of its potential returns per unit of risk. Universal Entertainment is currently generating about -0.09 per unit of risk. If you would invest  10,638  in Chesapeake Utilities on September 4, 2024 and sell it today you would earn a total of  1,962  from holding Chesapeake Utilities or generate 18.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

Chesapeake Utilities  vs.  Universal Entertainment

Chesapeake Utilities

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chesapeake Utilities are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Chesapeake Utilities reported solid returns over the last few months and may actually be approaching a breakup point.

Universal Entertainment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Universal Entertainment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Chesapeake Utilities and Universal Entertainment

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

The idea behind Chesapeake Utilities and Universal Entertainment 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.