Correlation Between Baytex Energy and Occidental Petroleum

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

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

Diversification Opportunities for Baytex Energy and Occidental Petroleum

0.88

Correlation Coefficient

Baytex Energy  Occidental Petroleum

Very poor diversification

The 3 months correlation between Baytex and Occidental is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Baytex Energy Corp and Occidental Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Occidental Petroleum and Baytex Energy 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 Baytex Energy Corp are associated (or correlated) with Occidental Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Occidental Petroleum has no effect on the direction of Baytex Energy i.e., Baytex Energy and Occidental Petroleum go up and down completely randomly.

Pair Corralation between Baytex Energy and Occidental Petroleum

Considering the 90-day investment horizon Baytex Energy Corp is expected to under-perform the Occidental Petroleum. In addition to that, Baytex Energy is 1.77 times more volatile than Occidental Petroleum. It trades about -0.03 of its total potential returns per unit of risk. Occidental Petroleum is currently generating about -0.03 per unit of volatility. If you would invest  6,256  in Occidental Petroleum on September 14, 2024 and sell it today you would lose (1,482) from holding Occidental Petroleum or give up 23.7% of portfolio value over 90 days.

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

Baytex Energy Corp  vs.  Occidental Petroleum

Baytex Energy Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Baytex Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Occidental Petroleum

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Occidental Petroleum has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Occidental Petroleum is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Baytex Energy and Occidental Petroleum

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

The idea behind Baytex Energy Corp and Occidental 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.