Correlation Between NiSource and Chesapeake Utilities

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

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

Diversification Opportunities for NiSource and Chesapeake Utilities

0.89

Correlation Coefficient

NiSource  Chesapeake Utilities

Very poor diversification

The 3 months correlation between NiSource and Chesapeake is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding NiSource and Chesapeake Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chesapeake Utilities and NiSource 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 NiSource 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 NiSource i.e., NiSource and Chesapeake Utilities go up and down completely randomly.

Pair Corralation between NiSource and Chesapeake Utilities

Assuming the 90 days horizon NiSource is expected to generate 0.92 times more return on investment than Chesapeake Utilities. However, NiSource is 1.09 times less risky than Chesapeake Utilities. It trades about 0.03 of its potential returns per unit of risk. Chesapeake Utilities is currently generating about -0.29 per unit of risk. If you would invest  3,480  in NiSource on October 13, 2024 and sell it today you would earn a total of  20.00  from holding NiSource or generate 0.57% return on investment over 90 days.

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

NiSource  vs.  Chesapeake Utilities

NiSource

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NiSource are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, NiSource reported solid returns over the last few months and may actually be approaching a breakup point.

Chesapeake Utilities

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Chesapeake Utilities are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Chesapeake Utilities is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with NiSource and Chesapeake Utilities

The main advantage of trading using opposite NiSource and Chesapeake Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NiSource 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 NiSource 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.