Correlation Between Chesapeake Utilities and Darden Restaurants

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

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

Diversification Opportunities for Chesapeake Utilities and Darden Restaurants

0.89

Correlation Coefficient

Chesapeake Utilities  Darden Restaurants

Very poor diversification

The 3 months correlation between Chesapeake and Darden is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Chesapeake Utilities and Darden Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darden Restaurants 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 Darden Restaurants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Darden Restaurants has no effect on the direction of Chesapeake Utilities i.e., Chesapeake Utilities and Darden Restaurants go up and down completely randomly.

Pair Corralation between Chesapeake Utilities and Darden Restaurants

Assuming the 90 days horizon Chesapeake Utilities is expected to generate 0.94 times more return on investment than Darden Restaurants. However, Chesapeake Utilities is 1.06 times less risky than Darden Restaurants. It trades about 0.19 of its potential returns per unit of risk. Darden Restaurants is currently generating about 0.16 per unit of risk. If you would invest  10,638  in Chesapeake Utilities on September 4, 2024 and sell it today you would earn a total of  1,962  from holding Chesapeake Utilities or generate 18.44% 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.  Darden Restaurants

Chesapeake Utilities

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chesapeake Utilities are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Chesapeake Utilities reported solid returns over the last few months and may actually be approaching a breakup point.

Darden Restaurants

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Darden Restaurants are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Darden Restaurants unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chesapeake Utilities and Darden Restaurants

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

The idea behind Chesapeake Utilities and Darden Restaurants 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.

Check out your portfolio center.

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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.