Correlation Between Chesapeake Energy and NextSource Materials
Can any of the company-specific risk be diversified away by investing in both Chesapeake Energy and NextSource Materials 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 NextSource Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Chesapeake Energy and NextSource Materials, you can compare the effects of market volatilities on Chesapeake Energy and NextSource Materials 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 NextSource Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chesapeake Energy and NextSource Materials.
Diversification Opportunities for Chesapeake Energy and NextSource Materials
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Chesapeake and NextSource is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Chesapeake Energy and NextSource Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NextSource Materials 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 NextSource Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NextSource Materials has no effect on the direction of Chesapeake Energy i.e., Chesapeake Energy and NextSource Materials go up and down completely randomly.
Pair Corralation between Chesapeake Energy and NextSource Materials
Assuming the 90 days horizon Chesapeake Energy is expected to generate 0.62 times more return on investment than NextSource Materials. However, Chesapeake Energy is 1.62 times less risky than NextSource Materials. It trades about 0.26 of its potential returns per unit of risk. NextSource Materials is currently generating about -0.11 per unit of risk. If you would invest 5,770 in Chesapeake Energy on September 6, 2024 and sell it today you would earn a total of 634.00 from holding Chesapeake Energy or generate 10.99% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 30.16% |
Values | Daily Returns |
Chesapeake Energy vs. NextSource Materials
Performance |
Timeline |
Chesapeake Energy |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Solid
NextSource Materials |
Chesapeake Energy and NextSource Materials Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Chesapeake Energy and NextSource Materials
The main advantage of trading using opposite Chesapeake Energy and NextSource Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chesapeake Energy position performs unexpectedly, NextSource Materials 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 NextSource Materials will offset losses from the drop in NextSource Materials' long position.Chesapeake Energy vs. Albertsons Companies | Chesapeake Energy vs. Torm PLC Class | Chesapeake Energy vs. SNDL Inc | Chesapeake Energy vs. JD Sports Fashion |
NextSource Materials vs. Leading Edge Materials | NextSource Materials vs. Syrah Resources Limited | NextSource Materials vs. Mason Graphite | NextSource Materials vs. Graphite One |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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