Correlation Between Empire Petroleum and Chesapeake Energy

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

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

Diversification Opportunities for Empire Petroleum and Chesapeake Energy

-0.76

Correlation Coefficient

Empire Petroleum  Chesapeake Energy

Pay attention - limited upside

The 3 months correlation between Empire and Chesapeake is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Empire Petroleum Corp and Chesapeake Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chesapeake Energy Corp and Empire Petroleum 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 Empire Petroleum Corp are associated (or correlated) with Chesapeake Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chesapeake Energy Corp has no effect on the direction of Empire Petroleum i.e., Empire Petroleum and Chesapeake Energy go up and down completely randomly.

Pair Corralation between Empire Petroleum and Chesapeake Energy

Allowing for the 90-day total investment horizon Empire Petroleum Corp is expected to under-perform the Chesapeake Energy. In addition to that, Empire Petroleum is 4.86 times more volatile than Chesapeake Energy Corp. It trades about -0.01 of its total potential returns per unit of risk. Chesapeake Energy Corp is currently generating about 0.17 per unit of volatility. If you would invest  8,883  in Chesapeake Energy Corp on January 28, 2024 and sell it today you would earn a total of  323.00  from holding Chesapeake Energy Corp or generate 3.64% return on investment over 90 days.

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

Empire Petroleum Corp  vs.  Chesapeake Energy Corp

Empire Petroleum Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Empire Petroleum Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in May 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Chesapeake Energy Corp

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chesapeake Energy Corp are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady technical indicators, Chesapeake Energy disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Empire Petroleum and Chesapeake Energy

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

The idea behind Empire Petroleum Corp and Chesapeake Energy Corp 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.