Correlation Between Chesapeake Utilities and United Utilities

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

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

Diversification Opportunities for Chesapeake Utilities and United Utilities

0.01

Correlation Coefficient

Chesapeake Utilities  United Utilities

Significant diversification

The 3 months correlation between Chesapeake and United is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Chesapeake Utilities and United Utilities Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Utilities 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 United Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Utilities has no effect on the direction of Chesapeake Utilities i.e., Chesapeake Utilities and United Utilities go up and down completely randomly.

Pair Corralation between Chesapeake Utilities and United Utilities

Assuming the 90 days horizon Chesapeake Utilities is expected to generate 0.67 times more return on investment than United Utilities. However, Chesapeake Utilities is 1.5 times less risky than United Utilities. It trades about -0.01 of its potential returns per unit of risk. United Utilities Group is currently generating about -0.05 per unit of risk. If you would invest  11,441  in Chesapeake Utilities on December 24, 2024 and sell it today you would lose (141.00) from holding Chesapeake Utilities or give up 1.23% of portfolio value over 90 days.

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

Chesapeake Utilities  vs.  United Utilities Group

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

United Utilities

Risk-Adjusted Performance

Very Weak

Over the last 90 days United Utilities Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, United Utilities 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 United Utilities

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

The idea behind Chesapeake Utilities and United Utilities 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.