Correlation Between Apple and Chevron

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

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

Diversification Opportunities for Apple and Chevron

0.83

Correlation Coefficient

Apple  Chevron

Very poor diversification

The 3 months correlation between Apple and Chevron is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Apple Inc and Chevron in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chevron and Apple 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 Apple Inc are associated (or correlated) with Chevron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chevron has no effect on the direction of Apple i.e., Apple and Chevron go up and down completely randomly.

Pair Corralation between Apple and Chevron

Assuming the 90 days trading horizon Apple Inc is expected to generate 1.05 times more return on investment than Chevron. However, Apple is 1.05 times more volatile than Chevron. It trades about 0.07 of its potential returns per unit of risk. Chevron is currently generating about 0.03 per unit of risk. If you would invest  17,282  in Apple Inc on September 12, 2024 and sell it today you would earn a total of  6,248  from holding Apple Inc or generate 36.15% return on investment over 90 days.

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

Apple Inc  vs.  Chevron

Apple Inc

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Apple Inc are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain fundamental indicators, Apple displayed solid returns over the last few months and may actually be approaching a breakup point.

Chevron

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Chevron are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Chevron reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Apple and Chevron

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

The idea behind Apple Inc and Chevron 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.