Correlation Between Chesapeake Energy and Sarama Resources

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

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

Diversification Opportunities for Chesapeake Energy and Sarama Resources

-0.6

Correlation Coefficient

Chesapeake Energy  Sarama Resources

Excellent diversification

The 3 months correlation between Chesapeake and Sarama is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Chesapeake Energy and Sarama Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sarama Resources 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 Sarama Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sarama Resources has no effect on the direction of Chesapeake Energy i.e., Chesapeake Energy and Sarama Resources go up and down completely randomly.

Pair Corralation between Chesapeake Energy and Sarama Resources

Assuming the 90 days horizon Chesapeake Energy is expected to generate 31.69 times more return on investment than Sarama Resources. However, Chesapeake Energy is 31.69 times more volatile than Sarama Resources. It trades about 0.4 of its potential returns per unit of risk. Sarama Resources is currently generating about 0.09 per unit of risk. If you would invest  6,070  in Chesapeake Energy on September 3, 2024 and sell it today you would earn a total of  1,119  from holding Chesapeake Energy or generate 18.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	7.69%
Values	Daily Returns

Chesapeake Energy  vs.  Sarama Resources

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. In spite of fairly weak technical and fundamental indicators, Chesapeake Energy showed solid returns over the last few months and may actually be approaching a breakup point.

Sarama Resources

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sarama Resources are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile primary indicators, Sarama Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chesapeake Energy and Sarama Resources

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

The idea behind Chesapeake Energy and Sarama Resources 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.