Correlation Between PSB Holdings and Chesapeake Finl

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

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

Diversification Opportunities for PSB Holdings and Chesapeake Finl

0.54

Correlation Coefficient

PSB Holdings  Chesapeake Finl

Very weak diversification

The 3 months correlation between PSB and Chesapeake is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding PSB Holdings and Chesapeake Finl Shs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chesapeake Finl Shs and PSB Holdings 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 PSB Holdings are associated (or correlated) with Chesapeake Finl. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chesapeake Finl Shs has no effect on the direction of PSB Holdings i.e., PSB Holdings and Chesapeake Finl go up and down completely randomly.

Pair Corralation between PSB Holdings and Chesapeake Finl

Given the investment horizon of 90 days PSB Holdings is expected to generate 3.63 times less return on investment than Chesapeake Finl. But when comparing it to its historical volatility, PSB Holdings is 1.39 times less risky than Chesapeake Finl. It trades about 0.07 of its potential returns per unit of risk. Chesapeake Finl Shs is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1,855  in Chesapeake Finl Shs on December 5, 2024 and sell it today you would earn a total of  63.00  from holding Chesapeake Finl Shs or generate 3.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

PSB Holdings  vs.  Chesapeake Finl Shs

PSB Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days PSB Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental drivers, PSB Holdings is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Chesapeake Finl Shs

Risk-Adjusted Performance

Weak

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

Pair Trading with PSB Holdings and Chesapeake Finl

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

The idea behind PSB Holdings and Chesapeake Finl Shs 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.