Correlation Between JAPAN AIRLINES and Chesapeake Utilities

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

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

Diversification Opportunities for JAPAN AIRLINES and Chesapeake Utilities

-0.05

Correlation Coefficient

JAPAN AIRLINES  Chesapeake Utilities

Good diversification

The 3 months correlation between JAPAN and Chesapeake is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding JAPAN AIRLINES and Chesapeake Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chesapeake Utilities and JAPAN AIRLINES 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 JAPAN AIRLINES 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 JAPAN AIRLINES i.e., JAPAN AIRLINES and Chesapeake Utilities go up and down completely randomly.

Pair Corralation between JAPAN AIRLINES and Chesapeake Utilities

Assuming the 90 days trading horizon JAPAN AIRLINES is expected to generate 2.75 times less return on investment than Chesapeake Utilities. But when comparing it to its historical volatility, JAPAN AIRLINES is 1.14 times less risky than Chesapeake Utilities. It trades about 0.08 of its potential returns per unit of risk. Chesapeake Utilities is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  10,638  in Chesapeake Utilities on September 4, 2024 and sell it today you would earn a total of  1,962  from holding Chesapeake Utilities or generate 18.44% return on investment over 90 days.

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

JAPAN AIRLINES  vs.  Chesapeake Utilities

JAPAN AIRLINES

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in JAPAN AIRLINES are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, JAPAN AIRLINES is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

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.

Pair Trading with JAPAN AIRLINES and Chesapeake Utilities

The main advantage of trading using opposite JAPAN AIRLINES and Chesapeake Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if JAPAN AIRLINES 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 JAPAN AIRLINES 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.