Correlation Between CHEVRON CDR and Methanex

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

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

Diversification Opportunities for CHEVRON CDR and Methanex

0.64

Correlation Coefficient

CHEVRON CDR  Methanex

Poor diversification

The 3 months correlation between CHEVRON and Methanex is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding CHEVRON CDR and Methanex in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Methanex and CHEVRON CDR 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 CDR are associated (or correlated) with Methanex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Methanex has no effect on the direction of CHEVRON CDR i.e., CHEVRON CDR and Methanex go up and down completely randomly.

Pair Corralation between CHEVRON CDR and Methanex

Assuming the 90 days trading horizon CHEVRON CDR is expected to generate 2.52 times less return on investment than Methanex. But when comparing it to its historical volatility, CHEVRON CDR is 1.73 times less risky than Methanex. It trades about 0.13 of its potential returns per unit of risk. Methanex is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  5,868  in Methanex on March 3, 2024 and sell it today you would earn a total of  1,377  from holding Methanex or generate 23.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

CHEVRON CDR  vs.  Methanex

CHEVRON CDR

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CHEVRON CDR are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal basic indicators, CHEVRON CDR may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Methanex

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Methanex are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Methanex displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CHEVRON CDR and Methanex

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

The idea behind CHEVRON CDR and Methanex 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.