Correlation Between Chesapeake Utilities and Sunstone Hotel

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

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

Diversification Opportunities for Chesapeake Utilities and Sunstone Hotel

-0.53

Correlation Coefficient

Chesapeake Utilities  Sunstone Hotel

Excellent diversification

The 3 months correlation between Chesapeake and Sunstone is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Chesapeake Utilities and Sunstone Hotel Investors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sunstone Hotel Investors 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 Sunstone Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sunstone Hotel Investors has no effect on the direction of Chesapeake Utilities i.e., Chesapeake Utilities and Sunstone Hotel go up and down completely randomly.

Pair Corralation between Chesapeake Utilities and Sunstone Hotel

Assuming the 90 days horizon Chesapeake Utilities is expected to under-perform the Sunstone Hotel. But the stock apears to be less risky and, when comparing its historical volatility, Chesapeake Utilities is 1.56 times less risky than Sunstone Hotel. The stock trades about -0.02 of its potential returns per unit of risk. The Sunstone Hotel Investors is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  992.00  in Sunstone Hotel Investors on November 29, 2024 and sell it today you would lose (2.00) from holding Sunstone Hotel Investors or give up 0.2% of portfolio value over 90 days.

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

Chesapeake Utilities  vs.  Sunstone Hotel Investors

Chesapeake Utilities

Risk-Adjusted Performance

Very Weak

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

Sunstone Hotel Investors

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Chesapeake Utilities and Sunstone Hotel

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

The idea behind Chesapeake Utilities and Sunstone Hotel Investors 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.