Correlation Between Chesapeake Utilities and Seven West

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

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

Diversification Opportunities for Chesapeake Utilities and Seven West

0.36

Correlation Coefficient

Chesapeake Utilities  Seven West

Weak diversification

The 3 months correlation between Chesapeake and Seven is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Chesapeake Utilities and Seven West Media in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seven West Media 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 Seven West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Seven West Media has no effect on the direction of Chesapeake Utilities i.e., Chesapeake Utilities and Seven West go up and down completely randomly.

Pair Corralation between Chesapeake Utilities and Seven West

Assuming the 90 days horizon Chesapeake Utilities is expected to generate 2.03 times less return on investment than Seven West. But when comparing it to its historical volatility, Chesapeake Utilities is 3.06 times less risky than Seven West. It trades about 0.03 of its potential returns per unit of risk. Seven West Media is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  8.05  in Seven West Media on December 22, 2024 and sell it today you would earn a total of  0.05  from holding Seven West Media or generate 0.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Chesapeake Utilities  vs.  Seven West Media

Chesapeake Utilities

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Chesapeake Utilities are ranked lower than 2 (%) 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.

Seven West Media

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Seven West Media are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Seven West 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 Seven West

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

The idea behind Chesapeake Utilities and Seven West Media 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.