Correlation Between General Electric and Chevron Corp

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

Diversification Opportunities for General Electric and Chevron Corp

0.23
  Correlation Coefficient

Modest diversification

The 3 months correlation between General and Chevron is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding General Electric and Chevron Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chevron Corp and General Electric 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 General Electric 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 General Electric i.e., General Electric and Chevron Corp go up and down completely randomly.

Pair Corralation between General Electric and Chevron Corp

Allowing for the 90-day total investment horizon General Electric is expected to generate 3.56 times less return on investment than Chevron Corp. In addition to that, General Electric is 1.05 times more volatile than Chevron Corp. It trades about 0.02 of its total potential returns per unit of risk. Chevron Corp is currently generating about 0.06 per unit of volatility. If you would invest  13,373  in Chevron Corp on November 2, 2022 and sell it today you would earn a total of  4,006  from holding Chevron Corp or generate 29.96% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

General Electric  vs.  Chevron Corp

 Performance (%) 
       Timeline  
General Electric 
General Performance
19 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in General Electric are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather sluggish technical and fundamental indicators, General Electric exhibited solid returns over the last few months and may actually be approaching a breakup point.

General Price Channel

Chevron Corp 
Chevron Performance
0 of 100
Over the last 90 days Chevron Corp has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Chevron Price Channel

General Electric and Chevron Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with General Electric and Chevron Corp

The main advantage of trading using opposite General Electric and Chevron Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if General Electric 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.
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The idea behind General Electric 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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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 Probability Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.

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