Correlation Between Snap and Chesapeake Energy
Can any of the company-specific risk be diversified away by investing in both Snap and Chesapeake 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 Snap and Chesapeake Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Snap Inc and Chesapeake Energy, you can compare the effects of market volatilities on Snap and Chesapeake 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 Snap with a short position of Chesapeake Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Snap and Chesapeake Energy.
Diversification Opportunities for Snap and Chesapeake Energy
-0.4 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Snap and Chesapeake is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Snap Inc and Chesapeake Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chesapeake Energy and Snap 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 Snap Inc are associated (or correlated) with Chesapeake Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chesapeake Energy has no effect on the direction of Snap i.e., Snap and Chesapeake Energy go up and down completely randomly.
Pair Corralation between Snap and Chesapeake Energy
Given the investment horizon of 90 days Snap is expected to generate 145.83 times less return on investment than Chesapeake Energy. But when comparing it to its historical volatility, Snap Inc is 35.74 times less risky than Chesapeake Energy. It trades about 0.03 of its potential returns per unit of risk. Chesapeake Energy is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 8,938 in Chesapeake Energy on August 30, 2024 and sell it today you would lose (1,749) from holding Chesapeake Energy or give up 19.57% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 50.1% |
| Values | Daily Returns |
Snap Inc vs. Chesapeake Energy
Performance |
| Timeline |
| Snap Inc |
| Chesapeake Energy |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Excellent
Snap and Chesapeake Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Snap and Chesapeake Energy
The main advantage of trading using opposite Snap and Chesapeake Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Snap position performs unexpectedly, Chesapeake 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 Chesapeake Energy will offset losses from the drop in Chesapeake Energy's long position.The idea behind Snap Inc and Chesapeake Energy 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.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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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