Correlation Between First Bancorp and Chevron Corp

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

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

Diversification Opportunities for First Bancorp and Chevron Corp

0.61

Correlation Coefficient

First Bancorp  Chevron Corp

Poor diversification

The 3 months correlation between First and Chevron is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding First Bancorp and Chevron Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chevron Corp and First Bancorp 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 First Bancorp are associated (or correlated) with Chevron Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chevron Corp has no effect on the direction of First Bancorp i.e., First Bancorp and Chevron Corp go up and down completely randomly.

Pair Corralation between First Bancorp and Chevron Corp

Considering the 90-day investment horizon First Bancorp is expected to under-perform the Chevron Corp. But the stock apears to be less risky and, when comparing its historical volatility, First Bancorp is 1.05 times less risky than Chevron Corp. The stock trades about -0.19 of its potential returns per unit of risk. The Chevron Corp is currently generating about -0.16 of returns per unit of risk over similar time horizon. If you would invest  16,289  in Chevron Corp on March 14, 2024 and sell it today you would lose (640.00) from holding Chevron Corp or give up 3.93% of portfolio value over 90 days.

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

First Bancorp  vs.  Chevron Corp

First Bancorp

Risk-Adjusted Performance

5 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Bancorp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental drivers, First Bancorp is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Chevron Corp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Chevron Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Chevron Corp is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Bancorp and Chevron Corp

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

The idea behind First Bancorp and Chevron 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.

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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.