Correlation Between Chesapeake Energy and Vital Energy

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

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

Diversification Opportunities for Chesapeake Energy and Vital Energy

-0.23

Correlation Coefficient

Chesapeake Energy  Vital Energy

Very good diversification

The 3 months correlation between Chesapeake and Vital is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Chesapeake Energy and Vital Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vital Energy and Chesapeake Energy 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 Energy are associated (or correlated) with Vital Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vital Energy has no effect on the direction of Chesapeake Energy i.e., Chesapeake Energy and Vital Energy go up and down completely randomly.

Pair Corralation between Chesapeake Energy and Vital Energy

Considering the 90-day investment horizon Chesapeake Energy is expected to generate 0.5 times more return on investment than Vital Energy. However, Chesapeake Energy is 1.99 times less risky than Vital Energy. It trades about 0.42 of its potential returns per unit of risk. Vital Energy is currently generating about 0.03 per unit of risk. If you would invest  7,824  in Chesapeake Energy on September 25, 2024 and sell it today you would earn a total of  322.00  from holding Chesapeake Energy or generate 4.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	9.52%
Values	Daily Returns

Chesapeake Energy  vs.  Vital Energy

Chesapeake Energy

Risk-Adjusted Performance

0 of 100

Very Strong

Over the last 90 days Chesapeake Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite unsteady technical indicators, Chesapeake Energy disclosed solid returns over the last few months and may actually be approaching a breakup point.

Vital Energy

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vital Energy are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, Vital Energy is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Chesapeake Energy and Vital Energy

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

The idea behind Chesapeake Energy and Vital Energy 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.

Check out your portfolio center.

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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.