Correlation Between Chesapeake Utilities and Southwest Airlines

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

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

Diversification Opportunities for Chesapeake Utilities and Southwest Airlines

0.8

Correlation Coefficient

Chesapeake Utilities  Southwest Airlines

Very poor diversification

The 3 months correlation between Chesapeake and Southwest is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Chesapeake Utilities and Southwest Airlines Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines 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 Southwest Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southwest Airlines has no effect on the direction of Chesapeake Utilities i.e., Chesapeake Utilities and Southwest Airlines go up and down completely randomly.

Pair Corralation between Chesapeake Utilities and Southwest Airlines

Assuming the 90 days horizon Chesapeake Utilities is expected to under-perform the Southwest Airlines. But the stock apears to be less risky and, when comparing its historical volatility, Chesapeake Utilities is 1.31 times less risky than Southwest Airlines. The stock trades about -0.34 of its potential returns per unit of risk. The Southwest Airlines Co is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  3,038  in Southwest Airlines Co on September 29, 2024 and sell it today you would earn a total of  226.00  from holding Southwest Airlines Co or generate 7.44% 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.  Southwest Airlines Co

Chesapeake Utilities

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Chesapeake Utilities are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Chesapeake Utilities is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Southwest Airlines

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Southwest Airlines Co are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Southwest Airlines reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chesapeake Utilities and Southwest Airlines

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

The idea behind Chesapeake Utilities and Southwest Airlines Co 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.