Correlation Between Sunstone Hotel and Chesapeake Utilities

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

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

Diversification Opportunities for Sunstone Hotel and Chesapeake Utilities

-0.4

Correlation Coefficient

Sunstone Hotel  Chesapeake Utilities

Very good diversification

The 3 months correlation between Sunstone and Chesapeake is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Sunstone Hotel Investors and Chesapeake Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chesapeake Utilities and Sunstone Hotel 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 Sunstone Hotel Investors 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 Sunstone Hotel i.e., Sunstone Hotel and Chesapeake Utilities go up and down completely randomly.

Pair Corralation between Sunstone Hotel and Chesapeake Utilities

Assuming the 90 days horizon Sunstone Hotel Investors is expected to generate 1.54 times more return on investment than Chesapeake Utilities. However, Sunstone Hotel is 1.54 times more volatile than Chesapeake Utilities. It trades about 0.13 of its potential returns per unit of risk. Chesapeake Utilities is currently generating about -0.05 per unit of risk. If you would invest  933.00  in Sunstone Hotel Investors on November 20, 2024 and sell it today you would earn a total of  137.00  from holding Sunstone Hotel Investors or generate 14.68% return on investment over 90 days.

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

Sunstone Hotel Investors  vs.  Chesapeake Utilities

Sunstone Hotel Investors

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sunstone Hotel Investors are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sunstone Hotel reported solid returns over the last few months and may actually be approaching a breakup point.

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 Sunstone Hotel and Chesapeake Utilities

The main advantage of trading using opposite Sunstone Hotel and Chesapeake Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sunstone Hotel 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 Sunstone Hotel Investors 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.