Correlation Between Tokyo Gas and Chesapeake Utilities

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

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

Diversification Opportunities for Tokyo Gas and Chesapeake Utilities

0.84

Correlation Coefficient

Tokyo Gas  Chesapeake Utilities

Very poor diversification

The 3 months correlation between Tokyo and Chesapeake is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Tokyo Gas CoLtd and Chesapeake Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chesapeake Utilities and Tokyo Gas 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 Tokyo Gas CoLtd 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 Tokyo Gas i.e., Tokyo Gas and Chesapeake Utilities go up and down completely randomly.

Pair Corralation between Tokyo Gas and Chesapeake Utilities

Assuming the 90 days horizon Tokyo Gas CoLtd is expected to generate 1.45 times more return on investment than Chesapeake Utilities. However, Tokyo Gas is 1.45 times more volatile than Chesapeake Utilities. It trades about 0.05 of its potential returns per unit of risk. Chesapeake Utilities is currently generating about 0.02 per unit of risk. If you would invest  1,710  in Tokyo Gas CoLtd on September 29, 2024 and sell it today you would earn a total of  970.00  from holding Tokyo Gas CoLtd or generate 56.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.8%
Values	Daily Returns

Tokyo Gas CoLtd  vs.  Chesapeake Utilities

Tokyo Gas CoLtd

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tokyo Gas CoLtd are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Tokyo Gas reported solid returns over the last few months and may actually be approaching a breakup point.

Chesapeake Utilities

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Chesapeake Utilities are ranked lower than 4 (%) 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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Tokyo Gas and Chesapeake Utilities

The main advantage of trading using opposite Tokyo Gas and Chesapeake Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tokyo Gas 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 Tokyo Gas CoLtd 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.