Correlation Between Sonos and Chesapeake Energy

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

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

Diversification Opportunities for Sonos and Chesapeake Energy

-0.59

Correlation Coefficient

Sonos  Chesapeake Energy

Excellent diversification

The 3 months correlation between Sonos and Chesapeake is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Sonos Inc and Chesapeake Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chesapeake Energy and Sonos 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 Sonos Inc are associated (or correlated) with Chesapeake Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chesapeake Energy has no effect on the direction of Sonos i.e., Sonos and Chesapeake Energy go up and down completely randomly.

Pair Corralation between Sonos and Chesapeake Energy

Given the investment horizon of 90 days Sonos is expected to generate 2.99 times less return on investment than Chesapeake Energy. But when comparing it to its historical volatility, Sonos Inc is 1.04 times less risky than Chesapeake Energy. It trades about 0.13 of its potential returns per unit of risk. Chesapeake Energy is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest  5,684  in Chesapeake Energy on September 14, 2024 and sell it today you would earn a total of  720.00  from holding Chesapeake Energy or generate 12.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	20.31%
Values	Daily Returns

Sonos Inc  vs.  Chesapeake Energy

Sonos Inc

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sonos Inc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Sonos displayed solid returns over the last few months and may actually be approaching a breakup point.

Chesapeake Energy

Risk-Adjusted Performance

0 of 100

Strong

Over the last 90 days Chesapeake Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly conflicting technical and fundamental indicators, Chesapeake Energy showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sonos and Chesapeake Energy

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

The idea behind Sonos Inc and Chesapeake Energy 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.