Correlation Between Chesapeake Utilities and Franklin Utilities

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

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

Diversification Opportunities for Chesapeake Utilities and Franklin Utilities

0.81

Correlation Coefficient

Chesapeake Utilities  Franklin Utilities

Very poor diversification

The 3 months correlation between Chesapeake and Franklin is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Chesapeake Utilities and Franklin Utilities Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Utilities and Chesapeake Utilities 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 Utilities are associated (or correlated) with Franklin Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Utilities has no effect on the direction of Chesapeake Utilities i.e., Chesapeake Utilities and Franklin Utilities go up and down completely randomly.

Pair Corralation between Chesapeake Utilities and Franklin Utilities

Considering the 90-day investment horizon Chesapeake Utilities is expected to generate 1.41 times more return on investment than Franklin Utilities. However, Chesapeake Utilities is 1.41 times more volatile than Franklin Utilities Fund. It trades about 0.15 of its potential returns per unit of risk. Franklin Utilities Fund is currently generating about 0.18 per unit of risk. If you would invest  11,744  in Chesapeake Utilities on August 31, 2024 and sell it today you would earn a total of  1,431  from holding Chesapeake Utilities or generate 12.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Chesapeake Utilities  vs.  Franklin Utilities Fund

Chesapeake Utilities

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chesapeake Utilities are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Chesapeake Utilities may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Franklin Utilities

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Utilities Fund are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Franklin Utilities may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Chesapeake Utilities and Franklin Utilities

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

The idea behind Chesapeake Utilities and Franklin Utilities Fund 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.