Correlation Between Pioneer Natural and Occidental Petroleum

Can any of the company-specific risk be diversified away by investing in both Pioneer Natural and Occidental Petroleum 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 Pioneer Natural and Occidental Petroleum into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Pioneer Natural Resources and Occidental Petroleum, you can compare the effects of market volatilities on Pioneer Natural and Occidental Petroleum 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 Pioneer Natural with a short position of Occidental Petroleum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pioneer Natural and Occidental Petroleum.

Diversification Opportunities for Pioneer Natural and Occidental Petroleum

0.33

Correlation Coefficient

Pioneer Natural  Occidental Petroleum

Weak diversification

The 3 months correlation between Pioneer and Occidental is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Pioneer Natural Resources and Occidental Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Occidental Petroleum and Pioneer Natural 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 Pioneer Natural Resources are associated (or correlated) with Occidental Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Occidental Petroleum has no effect on the direction of Pioneer Natural i.e., Pioneer Natural and Occidental Petroleum go up and down completely randomly.

Pair Corralation between Pioneer Natural and Occidental Petroleum

Assuming the 90 days horizon Pioneer Natural Resources is expected to generate 148.36 times more return on investment than Occidental Petroleum. However, Pioneer Natural is 148.36 times more volatile than Occidental Petroleum. It trades about 0.2 of its potential returns per unit of risk. Occidental Petroleum is currently generating about -0.25 per unit of risk. If you would invest  69.00  in Pioneer Natural Resources on February 29, 2024 and sell it today you would lose (11.00) from holding Pioneer Natural Resources or give up 15.94% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	86.36%
Values	Daily Returns

Pioneer Natural Resources  vs.  Occidental Petroleum

Pioneer Natural Resources

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pioneer Natural Resources are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Pioneer Natural reported solid returns over the last few months and may actually be approaching a breakup point.

Occidental Petroleum

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Occidental Petroleum are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Occidental Petroleum is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Pioneer Natural and Occidental Petroleum

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

The idea behind Pioneer Natural Resources and Occidental Petroleum 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.