Correlation Between Spire and Chesapeake Utilities

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

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

Diversification Opportunities for Spire and Chesapeake Utilities

0.74

Correlation Coefficient

Spire  Chesapeake Utilities

Poor diversification

The 3 months correlation between Spire and Chesapeake is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Spire Inc and Chesapeake Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chesapeake Utilities and Spire 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 Spire Inc 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 Spire i.e., Spire and Chesapeake Utilities go up and down completely randomly.

Pair Corralation between Spire and Chesapeake Utilities

Allowing for the 90-day total investment horizon Spire Inc is expected to under-perform the Chesapeake Utilities. But the stock apears to be less risky and, when comparing its historical volatility, Spire Inc is 1.19 times less risky than Chesapeake Utilities. The stock trades about -0.01 of its potential returns per unit of risk. The Chesapeake Utilities is currently generating about 0.06 of returns per unit of risk over similar time horizon. 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	Significant
Accuracy	100.0%
Values	Daily Returns

Spire Inc  vs.  Chesapeake Utilities

Spire Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Spire Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Spire is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

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.

Pair Trading with Spire and Chesapeake Utilities

The main advantage of trading using opposite Spire and Chesapeake Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Spire 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 Spire Inc 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.