Correlation Between NewJersey Resources and Chesapeake Utilities

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

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

Diversification Opportunities for NewJersey Resources and Chesapeake Utilities

0.75

Correlation Coefficient

NewJersey Resources  Chesapeake Utilities

Poor diversification

The 3 months correlation between NewJersey and Chesapeake is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding NewJersey Resources and Chesapeake Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chesapeake Utilities and NewJersey Resources 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 NewJersey Resources 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 NewJersey Resources i.e., NewJersey Resources and Chesapeake Utilities go up and down completely randomly.

Pair Corralation between NewJersey Resources and Chesapeake Utilities

Considering the 90-day investment horizon NewJersey Resources is expected to generate 0.7 times more return on investment than Chesapeake Utilities. However, NewJersey Resources is 1.43 times less risky than Chesapeake Utilities. It trades about -0.07 of its potential returns per unit of risk. Chesapeake Utilities is currently generating about -0.1 per unit of risk. If you would invest  4,832  in NewJersey Resources on May 7, 2025 and sell it today you would lose (211.00) from holding NewJersey Resources or give up 4.37% of portfolio value over 90 days.

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

NewJersey Resources  vs.  Chesapeake Utilities

NewJersey Resources

Risk-Adjusted Performance

Weakest

Over the last 90 days NewJersey Resources has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Chesapeake Utilities

Risk-Adjusted Performance

Weakest

Over the last 90 days Chesapeake Utilities has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with NewJersey Resources and Chesapeake Utilities

The main advantage of trading using opposite NewJersey Resources and Chesapeake Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NewJersey Resources 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 NewJersey Resources 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.