Correlation Between Chesapeake Utilities and OPAL Fuels

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

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

Diversification Opportunities for Chesapeake Utilities and OPAL Fuels

0.67

Correlation Coefficient

Chesapeake Utilities  OPAL Fuels

Poor diversification

The 3 months correlation between Chesapeake and OPAL is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Chesapeake Utilities and OPAL Fuels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OPAL Fuels 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 OPAL Fuels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OPAL Fuels has no effect on the direction of Chesapeake Utilities i.e., Chesapeake Utilities and OPAL Fuels go up and down completely randomly.

Pair Corralation between Chesapeake Utilities and OPAL Fuels

Considering the 90-day investment horizon Chesapeake Utilities is expected to generate 0.61 times more return on investment than OPAL Fuels. However, Chesapeake Utilities is 1.64 times less risky than OPAL Fuels. It trades about -0.04 of its potential returns per unit of risk. OPAL Fuels is currently generating about -0.21 per unit of risk. If you would invest  13,109  in Chesapeake Utilities on November 29, 2024 and sell it today you would lose (451.00) from holding Chesapeake Utilities or give up 3.44% of portfolio value over 90 days.

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

Chesapeake Utilities  vs.  OPAL Fuels

Chesapeake Utilities

Risk-Adjusted Performance

Very Weak

Over the last 90 days Chesapeake Utilities has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Chesapeake Utilities is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

OPAL Fuels

Risk-Adjusted Performance

Very Weak

Over the last 90 days OPAL Fuels has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in March 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Chesapeake Utilities and OPAL Fuels

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

The idea behind Chesapeake Utilities and OPAL Fuels 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.