Correlation Between Chesapeake Utilities and Fastenal

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

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

Diversification Opportunities for Chesapeake Utilities and Fastenal

0.85

Correlation Coefficient

Chesapeake Utilities  Fastenal

Very poor diversification

The 3 months correlation between Chesapeake and Fastenal is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Chesapeake Utilities and Fastenal Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fastenal 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 Fastenal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fastenal has no effect on the direction of Chesapeake Utilities i.e., Chesapeake Utilities and Fastenal go up and down completely randomly.

Pair Corralation between Chesapeake Utilities and Fastenal

Assuming the 90 days horizon Chesapeake Utilities is expected to generate 1.66 times less return on investment than Fastenal. But when comparing it to its historical volatility, Chesapeake Utilities is 1.24 times less risky than Fastenal. It trades about 0.17 of its potential returns per unit of risk. Fastenal Company is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  6,123  in Fastenal Company on September 2, 2024 and sell it today you would earn a total of  1,800  from holding Fastenal Company or generate 29.4% 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.  Fastenal Company

Chesapeake Utilities

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chesapeake Utilities are ranked lower than 13 (%) 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.

Fastenal

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fastenal Company are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Fastenal reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chesapeake Utilities and Fastenal

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

The idea behind Chesapeake Utilities and Fastenal Company 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.