Correlation Between Chesapeake Energy and Brooge Energy

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

By analyzing existing cross correlation between Chesapeake Energy and Brooge Energy Limited, you can compare the effects of market volatilities on Chesapeake Energy and Brooge Energy 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 Energy with a short position of Brooge Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chesapeake Energy and Brooge Energy.

Diversification Opportunities for Chesapeake Energy and Brooge Energy

0.47

Correlation Coefficient

Chesapeake Energy  Brooge Energy

Very weak diversification

The 3 months correlation between Chesapeake and Brooge is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Chesapeake Energy and Brooge Energy Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brooge Energy Limited and Chesapeake Energy 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 Energy are associated (or correlated) with Brooge Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brooge Energy Limited has no effect on the direction of Chesapeake Energy i.e., Chesapeake Energy and Brooge Energy go up and down completely randomly.

Pair Corralation between Chesapeake Energy and Brooge Energy

Assuming the 90 days horizon Chesapeake Energy is expected to generate 44.88 times less return on investment than Brooge Energy. But when comparing it to its historical volatility, Chesapeake Energy is 59.41 times less risky than Brooge Energy. It trades about 0.25 of its potential returns per unit of risk. Brooge Energy Limited is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  0.40  in Brooge Energy Limited on September 4, 2024 and sell it today you would lose (0.17) from holding Brooge Energy Limited or give up 42.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	53.85%
Values	Daily Returns

Chesapeake Energy  vs.  Brooge Energy Limited

Chesapeake Energy

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days Chesapeake Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite weak technical and fundamental indicators, Chesapeake Energy disclosed solid returns over the last few months and may actually be approaching a breakup point.

Brooge Energy Limited

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Brooge Energy Limited are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal technical and fundamental indicators, Brooge Energy showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chesapeake Energy and Brooge Energy

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

The idea behind Chesapeake Energy and Brooge Energy Limited 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.