Correlation Between Fastenal and Chesapeake Utilities

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

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

Diversification Opportunities for Fastenal and Chesapeake Utilities

0.79

Correlation Coefficient

Fastenal  Chesapeake Utilities

Poor diversification

The 3 months correlation between Fastenal and Chesapeake is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Fastenal Company and Chesapeake Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chesapeake Utilities and Fastenal 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 Fastenal Company are associated (or correlated) with Chesapeake Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chesapeake Utilities has no effect on the direction of Fastenal i.e., Fastenal and Chesapeake Utilities go up and down completely randomly.

Pair Corralation between Fastenal and Chesapeake Utilities

Assuming the 90 days horizon Fastenal Company is expected to generate 1.24 times more return on investment than Chesapeake Utilities. However, Fastenal is 1.24 times more volatile than Chesapeake Utilities. It trades about 0.24 of its potential returns per unit of risk. Chesapeake Utilities is currently generating about 0.17 per unit of risk. If you would invest  6,080  in Fastenal Company on September 3, 2024 and sell it today you would earn a total of  1,843  from holding Fastenal Company or generate 30.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Fastenal Company  vs.  Chesapeake Utilities

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 unsteady basic indicators, Fastenal reported solid returns over the last few months and may actually be approaching a breakup point.

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 uncertain basic indicators, Chesapeake Utilities reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fastenal and Chesapeake Utilities

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

The idea behind Fastenal Company and Chesapeake Utilities 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.