Correlation Between Canadian Utilities and Chesapeake Utilities

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

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

Diversification Opportunities for Canadian Utilities and Chesapeake Utilities

0.67

Correlation Coefficient

Canadian Utilities  Chesapeake Utilities

Poor diversification

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

Pair Corralation between Canadian Utilities and Chesapeake Utilities

Assuming the 90 days horizon Canadian Utilities is expected to generate 2.11 times less return on investment than Chesapeake Utilities. But when comparing it to its historical volatility, Canadian Utilities Limited is 1.25 times less risky than Chesapeake Utilities. It trades about 0.07 of its potential returns per unit of risk. Chesapeake Utilities is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  10,845  in Chesapeake Utilities on October 6, 2024 and sell it today you would earn a total of  755.00  from holding Chesapeake Utilities or generate 6.96% return on investment over 90 days.

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

Canadian Utilities Limited  vs.  Chesapeake Utilities

Canadian Utilities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Canadian Utilities Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Canadian Utilities is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Chesapeake Utilities

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chesapeake Utilities are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Chesapeake Utilities may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Canadian Utilities and Chesapeake Utilities

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

The idea behind Canadian Utilities Limited and Chesapeake Utilities 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.