Correlation Between CHINA SOUTHN and Chesapeake Utilities

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

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

Diversification Opportunities for CHINA SOUTHN and Chesapeake Utilities

0.63

Correlation Coefficient

CHINA SOUTHN  Chesapeake Utilities

Poor diversification

The 3 months correlation between CHINA and Chesapeake is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding CHINA SOUTHN AIR H and Chesapeake Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chesapeake Utilities and CHINA SOUTHN 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 CHINA SOUTHN AIR H 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 CHINA SOUTHN i.e., CHINA SOUTHN and Chesapeake Utilities go up and down completely randomly.

Pair Corralation between CHINA SOUTHN and Chesapeake Utilities

Assuming the 90 days trading horizon CHINA SOUTHN AIR H is expected to generate 2.89 times more return on investment than Chesapeake Utilities. However, CHINA SOUTHN is 2.89 times more volatile than Chesapeake Utilities. It trades about 0.23 of its potential returns per unit of risk. Chesapeake Utilities is currently generating about -0.34 per unit of risk. If you would invest  46.00  in CHINA SOUTHN AIR H on September 29, 2024 and sell it today you would earn a total of  6.00  from holding CHINA SOUTHN AIR H or generate 13.04% return on investment over 90 days.

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

CHINA SOUTHN AIR H   vs.  Chesapeake Utilities

CHINA SOUTHN AIR

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA SOUTHN AIR H are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, CHINA SOUTHN unveiled 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 CHINA SOUTHN and Chesapeake Utilities

The main advantage of trading using opposite CHINA SOUTHN and Chesapeake Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CHINA SOUTHN 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 CHINA SOUTHN AIR H 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.