Correlation Between Chesapeake Granite and Advanced Drainage

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

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

Diversification Opportunities for Chesapeake Granite and Advanced Drainage

-0.73

Correlation Coefficient

Chesapeake Granite  Advanced Drainage

Pay attention - limited upside

The 3 months correlation between Chesapeake and Advanced is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Chesapeake Granite Wash and Advanced Drainage Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced Drainage Systems and Chesapeake Granite 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 Granite Wash are associated (or correlated) with Advanced Drainage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced Drainage Systems has no effect on the direction of Chesapeake Granite i.e., Chesapeake Granite and Advanced Drainage go up and down completely randomly.

Pair Corralation between Chesapeake Granite and Advanced Drainage

Given the investment horizon of 90 days Chesapeake Granite is expected to generate 1.2 times less return on investment than Advanced Drainage. But when comparing it to its historical volatility, Chesapeake Granite Wash is 1.49 times less risky than Advanced Drainage. It trades about 0.05 of its potential returns per unit of risk. Advanced Drainage Systems is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  7,954  in Advanced Drainage Systems on October 5, 2024 and sell it today you would earn a total of  3,156  from holding Advanced Drainage Systems or generate 39.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	26.2%
Values	Daily Returns

Chesapeake Granite Wash  vs.  Advanced Drainage Systems

Chesapeake Granite Wash

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chesapeake Granite Wash has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward-looking signals, Chesapeake Granite is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Advanced Drainage Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Advanced Drainage Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Chesapeake Granite and Advanced Drainage

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

The idea behind Chesapeake Granite Wash and Advanced Drainage Systems 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.