Correlation Between Chatham Rock and Canadian Utilities

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

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

Diversification Opportunities for Chatham Rock and Canadian Utilities

0.22

Correlation Coefficient

Chatham Rock  Canadian Utilities

Modest diversification

The 3 months correlation between Chatham and Canadian is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Chatham Rock Phosphate and Canadian Utilities Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Utilities and Chatham Rock 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 Chatham Rock Phosphate are associated (or correlated) with Canadian Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Utilities has no effect on the direction of Chatham Rock i.e., Chatham Rock and Canadian Utilities go up and down completely randomly.

Pair Corralation between Chatham Rock and Canadian Utilities

Assuming the 90 days horizon Chatham Rock Phosphate is expected to generate 29.47 times more return on investment than Canadian Utilities. However, Chatham Rock is 29.47 times more volatile than Canadian Utilities Ltd. It trades about 0.09 of its potential returns per unit of risk. Canadian Utilities Ltd is currently generating about 0.1 per unit of risk. If you would invest  7.00  in Chatham Rock Phosphate on September 26, 2024 and sell it today you would earn a total of  1.00  from holding Chatham Rock Phosphate or generate 14.29% return on investment over 90 days.

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

Chatham Rock Phosphate  vs.  Canadian Utilities Ltd

Chatham Rock Phosphate

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Chatham Rock Phosphate are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Chatham Rock showed solid returns over the last few months and may actually be approaching a breakup point.

Canadian Utilities

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Utilities Ltd are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Canadian Utilities is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Chatham Rock and Canadian Utilities

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

The idea behind Chatham Rock Phosphate and Canadian Utilities Ltd 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 Anywhere module to track or share privately all of your investments from the convenience of any device.