Correlation Between Northern Oil and California Resources

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

By analyzing existing cross correlation between Northern Oil Gas and California Resources Corp, you can compare the effects of market volatilities on Northern Oil and California Resources 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 Northern Oil with a short position of California Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Oil and California Resources.

Diversification Opportunities for Northern Oil and California Resources

0.34

Correlation Coefficient

Northern Oil  California Resources

Weak diversification

The 3 months correlation between Northern and California is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Northern Oil Gas and California Resources Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on California Resources Corp and Northern Oil 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 Northern Oil Gas are associated (or correlated) with California Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of California Resources Corp has no effect on the direction of Northern Oil i.e., Northern Oil and California Resources go up and down completely randomly.

Pair Corralation between Northern Oil and California Resources

Considering the 90-day investment horizon Northern Oil is expected to generate 1.02 times less return on investment than California Resources. In addition to that, Northern Oil is 1.02 times more volatile than California Resources Corp. It trades about 0.03 of its total potential returns per unit of risk. California Resources Corp is currently generating about 0.03 per unit of volatility. If you would invest  4,286  in California Resources Corp on July 20, 2024 and sell it today you would earn a total of  946.00  from holding California Resources Corp or generate 22.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Northern Oil Gas  vs.  California Resources Corp

Northern Oil Gas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Northern Oil Gas has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Northern Oil is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

California Resources Corp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in California Resources Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, California Resources is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Northern Oil and California Resources

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

The idea behind Northern Oil Gas and California Resources Corp 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.