Correlation Between Chesapeake Energy and Critical Elements

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

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

Diversification Opportunities for Chesapeake Energy and Critical Elements

-0.66

Correlation Coefficient

Chesapeake Energy  Critical Elements

Excellent diversification

The 3 months correlation between Chesapeake and Critical is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Chesapeake Energy and Critical Elements in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Critical Elements 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 Critical Elements. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Critical Elements has no effect on the direction of Chesapeake Energy i.e., Chesapeake Energy and Critical Elements go up and down completely randomly.

Pair Corralation between Chesapeake Energy and Critical Elements

Assuming the 90 days horizon Chesapeake Energy is expected to generate 0.54 times more return on investment than Critical Elements. However, Chesapeake Energy is 1.84 times less risky than Critical Elements. It trades about 0.24 of its potential returns per unit of risk. Critical Elements is currently generating about 0.04 per unit of risk. If you would invest  5,448  in Chesapeake Energy on September 3, 2024 and sell it today you would earn a total of  802.00  from holding Chesapeake Energy or generate 14.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	34.38%
Values	Daily Returns

Chesapeake Energy  vs.  Critical Elements

Chesapeake Energy

Risk-Adjusted Performance

0 of 100

Solid

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

Critical Elements

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Critical Elements are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal fundamental indicators, Critical Elements may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Chesapeake Energy and Critical Elements

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

The idea behind Chesapeake Energy and Critical Elements 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.