Correlation Between Occidental Petroleum and Western Midstream

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

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

Diversification Opportunities for Occidental Petroleum and Western Midstream

0.86

Correlation Coefficient

Occidental Petroleum  Western Midstream

Very poor diversification

The 3 months correlation between Occidental and Western is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Occidental Petroleum and Western Midstream Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Midstream and Occidental Petroleum 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 Occidental Petroleum are associated (or correlated) with Western Midstream. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Midstream has no effect on the direction of Occidental Petroleum i.e., Occidental Petroleum and Western Midstream go up and down completely randomly.

Pair Corralation between Occidental Petroleum and Western Midstream

Considering the 90-day investment horizon Occidental Petroleum is expected to generate 4.13 times less return on investment than Western Midstream. But when comparing it to its historical volatility, Occidental Petroleum is 1.38 times less risky than Western Midstream. It trades about 0.05 of its potential returns per unit of risk. Western Midstream Partners is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  2,639  in Western Midstream Partners on January 20, 2024 and sell it today you would earn a total of  899.00  from holding Western Midstream Partners or generate 34.07% return on investment over 90 days.

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

Occidental Petroleum  vs.  Western Midstream Partners

Occidental Petroleum

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Occidental Petroleum are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Occidental Petroleum showed solid returns over the last few months and may actually be approaching a breakup point.

Western Midstream

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Western Midstream Partners are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Western Midstream unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Occidental Petroleum and Western Midstream

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

The idea behind Occidental Petroleum and Western Midstream Partners 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.