Correlation Between Wells Fargo and Chesapeake Utilities

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

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

Diversification Opportunities for Wells Fargo and Chesapeake Utilities

0.56

Correlation Coefficient

Wells Fargo  Chesapeake Utilities

Very weak diversification

The 3 months correlation between Wells and Chesapeake is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo and Chesapeake Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chesapeake Utilities and Wells Fargo 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 Wells Fargo 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 Wells Fargo i.e., Wells Fargo and Chesapeake Utilities go up and down completely randomly.

Pair Corralation between Wells Fargo and Chesapeake Utilities

Assuming the 90 days horizon Wells Fargo is expected to generate 1.51 times more return on investment than Chesapeake Utilities. However, Wells Fargo is 1.51 times more volatile than Chesapeake Utilities. It trades about 0.02 of its potential returns per unit of risk. Chesapeake Utilities is currently generating about 0.02 per unit of risk. If you would invest  6,773  in Wells Fargo on December 27, 2024 and sell it today you would earn a total of  93.00  from holding Wells Fargo or generate 1.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Wells Fargo  vs.  Chesapeake Utilities

Wells Fargo

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Wells Fargo are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Wells Fargo is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Chesapeake Utilities

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Chesapeake Utilities are ranked lower than 1 (%) 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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Wells Fargo and Chesapeake Utilities

The main advantage of trading using opposite Wells Fargo and Chesapeake Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wells Fargo 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 Wells Fargo 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..