Correlation Between Chesapeake Utilities and NewJersey Resources

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

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

Diversification Opportunities for Chesapeake Utilities and NewJersey Resources

0.83

Correlation Coefficient

Chesapeake Utilities  NewJersey Resources

Very poor diversification

The 3 months correlation between Chesapeake and NewJersey is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Chesapeake Utilities and NewJersey Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NewJersey Resources and Chesapeake Utilities 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 Utilities are associated (or correlated) with NewJersey Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NewJersey Resources has no effect on the direction of Chesapeake Utilities i.e., Chesapeake Utilities and NewJersey Resources go up and down completely randomly.

Pair Corralation between Chesapeake Utilities and NewJersey Resources

Considering the 90-day investment horizon Chesapeake Utilities is expected to generate 1.18 times more return on investment than NewJersey Resources. However, Chesapeake Utilities is 1.18 times more volatile than NewJersey Resources. It trades about 0.06 of its potential returns per unit of risk. NewJersey Resources is currently generating about 0.06 per unit of risk. If you would invest  10,194  in Chesapeake Utilities on March 14, 2024 and sell it today you would earn a total of  450.00  from holding Chesapeake Utilities or generate 4.41% return on investment over 90 days.

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

Chesapeake Utilities  vs.  NewJersey Resources

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 quite persistent basic indicators, Chesapeake Utilities is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

NewJersey Resources

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NewJersey Resources are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable forward-looking indicators, NewJersey Resources is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Chesapeake Utilities and NewJersey Resources

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

The idea behind Chesapeake Utilities and NewJersey Resources 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.