Correlation Between Chesapeake Utilities and RGC Resources

Can any of the company-specific risk be diversified away by investing in both Chesapeake Utilities and RGC 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 RGC 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 RGC Resources, you can compare the effects of market volatilities on Chesapeake Utilities and RGC 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 RGC Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chesapeake Utilities and RGC Resources.

Diversification Opportunities for Chesapeake Utilities and RGC Resources

0.72

Correlation Coefficient

Chesapeake Utilities  RGC Resources

Poor diversification

The 3 months correlation between Chesapeake and RGC is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Chesapeake Utilities and RGC Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RGC 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 RGC Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RGC Resources has no effect on the direction of Chesapeake Utilities i.e., Chesapeake Utilities and RGC Resources go up and down completely randomly.

Pair Corralation between Chesapeake Utilities and RGC Resources

Considering the 90-day investment horizon Chesapeake Utilities is expected to generate 0.43 times more return on investment than RGC Resources. However, Chesapeake Utilities is 2.34 times less risky than RGC Resources. It trades about 0.13 of its potential returns per unit of risk. RGC Resources is currently generating about 0.05 per unit of risk. If you would invest  11,414  in Chesapeake Utilities on August 15, 2024 and sell it today you would earn a total of  1,189  from holding Chesapeake Utilities or generate 10.42% return on investment over 90 days.

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

Chesapeake Utilities  vs.  RGC Resources

Chesapeake Utilities

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chesapeake Utilities are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Chesapeake Utilities may actually be approaching a critical reversion point that can send shares even higher in December 2024.

RGC Resources

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in RGC Resources are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady fundamental indicators, RGC Resources may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Chesapeake Utilities and RGC Resources

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

The idea behind Chesapeake Utilities and RGC 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.