Correlation Between Chesapeake Energy and Advantage Solutions

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

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

Diversification Opportunities for Chesapeake Energy and Advantage Solutions

-0.16

Correlation Coefficient

Chesapeake Energy  Advantage Solutions

Good diversification

The 3 months correlation between Chesapeake and Advantage is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Chesapeake Energy and Advantage Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advantage Solutions and Chesapeake Energy 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 Chesapeake Energy are associated (or correlated) with Advantage Solutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advantage Solutions has no effect on the direction of Chesapeake Energy i.e., Chesapeake Energy and Advantage Solutions go up and down completely randomly.

Pair Corralation between Chesapeake Energy and Advantage Solutions

Assuming the 90 days horizon Chesapeake Energy is expected to generate 11.47 times less return on investment than Advantage Solutions. But when comparing it to its historical volatility, Chesapeake Energy is 9.5 times less risky than Advantage Solutions. It trades about 0.05 of its potential returns per unit of risk. Advantage Solutions is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  8.50  in Advantage Solutions on March 12, 2024 and sell it today you would lose (3.99) from holding Advantage Solutions or give up 46.94% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	65.99%
Values	Daily Returns

Chesapeake Energy  vs.  Advantage Solutions

Chesapeake Energy

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chesapeake Energy are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, Chesapeake Energy disclosed solid returns over the last few months and may actually be approaching a breakup point.

Advantage Solutions

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Advantage Solutions are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Advantage Solutions showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chesapeake Energy and Advantage Solutions

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

The idea behind Chesapeake Energy and Advantage Solutions 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..