Correlation Between Chesapeake Energy and Western Forest
Can any of the company-specific risk be diversified away by investing in both Chesapeake Energy and Western Forest 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 Western Forest into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Chesapeake Energy and Western Forest Products, you can compare the effects of market volatilities on Chesapeake Energy and Western Forest 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 Western Forest. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chesapeake Energy and Western Forest.
Diversification Opportunities for Chesapeake Energy and Western Forest
-0.56 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Chesapeake and Western is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Chesapeake Energy and Western Forest Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Forest Products 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 Western Forest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Forest Products has no effect on the direction of Chesapeake Energy i.e., Chesapeake Energy and Western Forest go up and down completely randomly.
Pair Corralation between Chesapeake Energy and Western Forest
Assuming the 90 days horizon Chesapeake Energy is expected to generate 0.88 times more return on investment than Western Forest. However, Chesapeake Energy is 1.14 times less risky than Western Forest. It trades about 0.02 of its potential returns per unit of risk. Western Forest Products is currently generating about -0.09 per unit of risk. If you would invest 5,681 in Chesapeake Energy on August 27, 2024 and sell it today you would earn a total of 569.00 from holding Chesapeake Energy or generate 10.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 96.82% |
| Values | Daily Returns |
Chesapeake Energy vs. Western Forest Products
Performance |
| Timeline |
| Chesapeake Energy |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Solid
| Western Forest Products |
Chesapeake Energy and Western Forest Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Chesapeake Energy and Western Forest
The main advantage of trading using opposite Chesapeake Energy and Western Forest positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chesapeake Energy position performs unexpectedly, Western Forest 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 Western Forest will offset losses from the drop in Western Forest's long position.| Chesapeake Energy vs. NGL Energy Partners | Chesapeake Energy vs. Global Partners LP | Chesapeake Energy vs. Crescent Energy Co |
| Western Forest vs. Interfor | Western Forest vs. Svenska Cellulosa Aktiebolaget | Western Forest vs. Stella Jones | Western Forest vs. Simpson Manufacturing |
Check out your portfolio center.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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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