Correlation Between Chevron Corp and Financials Ultrasector

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Can any of the company-specific risk be diversified away by investing in both Chevron Corp and Financials Ultrasector 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 Financials Ultrasector into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Chevron Corp and Financials Ultrasector Profund, you can compare the effects of market volatilities on Chevron Corp and Financials Ultrasector 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 Financials Ultrasector. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chevron Corp and Financials Ultrasector.

Diversification Opportunities for Chevron Corp and Financials Ultrasector

0.73
  Correlation Coefficient

Poor diversification

The 3 months correlation between Chevron and Financials is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Chevron Corp and FINANCIALS ULTRASECTOR PROFUND in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financials Ultrasector 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 Financials Ultrasector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financials Ultrasector has no effect on the direction of Chevron Corp i.e., Chevron Corp and Financials Ultrasector go up and down completely randomly.

Pair Corralation between Chevron Corp and Financials Ultrasector

Considering the 90-day investment horizon Chevron Corp is expected to generate 1.57 times less return on investment than Financials Ultrasector. But when comparing it to its historical volatility, Chevron Corp is 1.14 times less risky than Financials Ultrasector. It trades about 0.18 of its potential returns per unit of risk. Financials Ultrasector Profund is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  3,139  in Financials Ultrasector Profund on December 3, 2023 and sell it today you would earn a total of  166.00  from holding Financials Ultrasector Profund or generate 5.29% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Chevron Corp  vs.  FINANCIALS ULTRASECTOR PROFUND

 Performance 
       Timeline  
Chevron Corp 

Risk-Adjusted Performance

8 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Chevron Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Chevron Corp may actually be approaching a critical reversion point that can send shares even higher in April 2024.
Financials Ultrasector 

Risk-Adjusted Performance

19 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Financials Ultrasector Profund are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Financials Ultrasector showed solid returns over the last few months and may actually be approaching a breakup point.

Chevron Corp and Financials Ultrasector Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Chevron Corp and Financials Ultrasector

The main advantage of trading using opposite Chevron Corp and Financials Ultrasector positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chevron Corp position performs unexpectedly, Financials Ultrasector 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 Financials Ultrasector will offset losses from the drop in Financials Ultrasector's long position.
The idea behind Chevron Corp and Financials Ultrasector Profund 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.

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