Correlation Between Taylor Morrison and Chesapeake Utilities

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

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

Diversification Opportunities for Taylor Morrison and Chesapeake Utilities

0.33

Correlation Coefficient

Taylor Morrison  Chesapeake Utilities

Weak diversification

The 3 months correlation between Taylor and Chesapeake is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Taylor Morrison Home and Chesapeake Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chesapeake Utilities and Taylor Morrison 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 Taylor Morrison Home 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 Taylor Morrison i.e., Taylor Morrison and Chesapeake Utilities go up and down completely randomly.

Pair Corralation between Taylor Morrison and Chesapeake Utilities

Assuming the 90 days trading horizon Taylor Morrison Home is expected to under-perform the Chesapeake Utilities. In addition to that, Taylor Morrison is 1.5 times more volatile than Chesapeake Utilities. It trades about -0.04 of its total potential returns per unit of risk. Chesapeake Utilities is currently generating about -0.01 per unit of volatility. If you would invest  11,441  in Chesapeake Utilities on December 24, 2024 and sell it today you would lose (141.00) from holding Chesapeake Utilities or give up 1.23% of portfolio value over 90 days.

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

Taylor Morrison Home  vs.  Chesapeake Utilities

Taylor Morrison Home

Risk-Adjusted Performance

Very Weak

Over the last 90 days Taylor Morrison Home has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Taylor Morrison is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Chesapeake Utilities

Risk-Adjusted Performance

Very Weak

Over the last 90 days Chesapeake Utilities has generated negative risk-adjusted returns adding no value to investors with long positions. 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 Taylor Morrison and Chesapeake Utilities

The main advantage of trading using opposite Taylor Morrison and Chesapeake Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taylor Morrison 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 Taylor Morrison Home 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .