Correlation Between Hess and Woodside Petroleum

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

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

Diversification Opportunities for Hess and Woodside Petroleum

0.09

Correlation Coefficient

Hess  Woodside Petroleum

Significant diversification

The 3 months correlation between Hess and Woodside is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Hess Corp. and Woodside Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Woodside Petroleum and Hess 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 Hess Corporation are associated (or correlated) with Woodside Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Woodside Petroleum has no effect on the direction of Hess i.e., Hess and Woodside Petroleum go up and down completely randomly.

Pair Corralation between Hess and Woodside Petroleum

Considering the 90-day investment horizon Hess Corporation is expected to generate 0.35 times more return on investment than Woodside Petroleum. However, Hess Corporation is 2.83 times less risky than Woodside Petroleum. It trades about 0.27 of its potential returns per unit of risk. Woodside Petroleum is currently generating about -0.1 per unit of risk. If you would invest  14,960  in Hess Corporation on January 26, 2024 and sell it today you would earn a total of  953.00  from holding Hess Corporation or generate 6.37% return on investment over 90 days.

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

Hess Corp.  vs.  Woodside Petroleum

Hess

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hess Corporation are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical and fundamental indicators, Hess may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Woodside Petroleum

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Woodside Petroleum has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Woodside 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 Hess and Woodside Petroleum

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

The idea behind Hess Corporation and Woodside 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.