Correlation Between Chevron Corp and Imperial Oil
Can any of the company-specific risk be diversified away by investing in both Chevron Corp and Imperial Oil 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 Chevron Corp and Imperial Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Chevron Corp and Imperial Oil, you can compare the effects of market volatilities on Chevron Corp and Imperial Oil 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 Chevron Corp with a short position of Imperial Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chevron Corp and Imperial Oil.
Diversification Opportunities for Chevron Corp and Imperial Oil
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Chevron and Imperial is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Chevron Corp and Imperial Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Imperial Oil and Chevron Corp 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 Chevron Corp are associated (or correlated) with Imperial Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Imperial Oil has no effect on the direction of Chevron Corp i.e., Chevron Corp and Imperial Oil go up and down completely randomly.
Pair Corralation between Chevron Corp and Imperial Oil
Considering the 90-day investment horizon Chevron Corp is expected to generate 3.27 times less return on investment than Imperial Oil. But when comparing it to its historical volatility, Chevron Corp is 1.3 times less risky than Imperial Oil. It trades about 0.02 of its potential returns per unit of risk. Imperial Oil is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 4,853 in Imperial Oil on January 21, 2024 and sell it today you would earn a total of 2,091 from holding Imperial Oil or generate 43.09% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.8% |
| Values | Daily Returns |
Chevron Corp vs. Imperial Oil
Performance |
| Timeline |
| Chevron Corp |
| Imperial Oil |
Chevron Corp and Imperial Oil Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Chevron Corp and Imperial Oil
The main advantage of trading using opposite Chevron Corp and Imperial Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chevron Corp position performs unexpectedly, Imperial Oil 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 Imperial Oil will offset losses from the drop in Imperial Oil's long position.The idea behind Chevron Corp and Imperial Oil 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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