Correlation Between Chesapeake Utilities and Motorola Solutions

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

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

Diversification Opportunities for Chesapeake Utilities and Motorola Solutions

0.89

Correlation Coefficient

Chesapeake Utilities  Motorola Solutions

Very poor diversification

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

Pair Corralation between Chesapeake Utilities and Motorola Solutions

Assuming the 90 days horizon Chesapeake Utilities is expected to generate 1.1 times less return on investment than Motorola Solutions. But when comparing it to its historical volatility, Chesapeake Utilities is 1.09 times less risky than Motorola Solutions. It trades about 0.18 of its potential returns per unit of risk. Motorola Solutions is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  39,851  in Motorola Solutions on September 1, 2024 and sell it today you would earn a total of  7,789  from holding Motorola Solutions or generate 19.55% 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.  Motorola Solutions

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.

Motorola Solutions

Risk-Adjusted Performance

14 of 100

Good

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

Pair Trading with Chesapeake Utilities and Motorola Solutions

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

The idea behind Chesapeake Utilities and Motorola Solutions 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .