Correlation Between Chesapeake Utilities and Granite Construction

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Can any of the company-specific risk be diversified away by investing in both Chesapeake Utilities and Granite Construction 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 Granite Construction into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Chesapeake Utilities and Granite Construction, you can compare the effects of market volatilities on Chesapeake Utilities and Granite Construction 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 Granite Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chesapeake Utilities and Granite Construction.

Diversification Opportunities for Chesapeake Utilities and Granite Construction

ChesapeakeGraniteDiversified AwayChesapeakeGraniteDiversified Away100%
0.89
  Correlation Coefficient

Very poor diversification

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

Pair Corralation between Chesapeake Utilities and Granite Construction

Assuming the 90 days horizon Chesapeake Utilities is expected to generate 1.0 times more return on investment than Granite Construction. However, Chesapeake Utilities is 1.0 times more volatile than Granite Construction. It trades about 0.07 of its potential returns per unit of risk. Granite Construction is currently generating about 0.01 per unit of risk. If you would invest  11,900  in Chesapeake Utilities on September 14, 2024 and sell it today you would earn a total of  200.00  from holding Chesapeake Utilities or generate 1.68% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Chesapeake Utilities  vs.  Granite Construction

 Performance 
JavaScript chart by amCharts 3.21.15OctNov 010203040
JavaScript chart by amCharts 3.21.15CH5 GRG
       Timeline  
Chesapeake Utilities 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Chesapeake Utilities are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Chesapeake Utilities may actually be approaching a critical reversion point that can send shares even higher in January 2025.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec105110115120125
Granite Construction 

Risk-Adjusted Performance

18 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Granite Construction are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Granite Construction unveiled solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec707580859095

Chesapeake Utilities and Granite Construction Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-4.42-3.31-2.2-1.090.01851.172.353.544.72 0.050.100.15
JavaScript chart by amCharts 3.21.15CH5 GRG
       Returns  

Pair Trading with Chesapeake Utilities and Granite Construction

The main advantage of trading using opposite Chesapeake Utilities and Granite Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chesapeake Utilities position performs unexpectedly, Granite Construction 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 Granite Construction will offset losses from the drop in Granite Construction's long position.
The idea behind Chesapeake Utilities and Granite Construction 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.

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