Correlation Between Chevron and Retail Estates

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

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

Diversification Opportunities for Chevron and Retail Estates

-0.95

Correlation Coefficient

Chevron  Retail Estates

Pay attention - limited upside

The 3 months correlation between Chevron and Retail is -0.95. Overlapping area represents the amount of risk that can be diversified away by holding Chevron and Retail Estates NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Retail Estates NV and Chevron 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 Chevron are associated (or correlated) with Retail Estates. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Retail Estates NV has no effect on the direction of Chevron i.e., Chevron and Retail Estates go up and down completely randomly.

Pair Corralation between Chevron and Retail Estates

Assuming the 90 days horizon Chevron is expected to generate 1.4 times more return on investment than Retail Estates. However, Chevron is 1.4 times more volatile than Retail Estates NV. It trades about 0.2 of its potential returns per unit of risk. Retail Estates NV is currently generating about -0.25 per unit of risk. If you would invest  12,616  in Chevron on September 13, 2024 and sell it today you would earn a total of  2,284  from holding Chevron or generate 18.1% return on investment over 90 days.

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

Chevron  vs.  Retail Estates NV

Chevron

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chevron are ranked lower than 15 (%) 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.

Retail Estates NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Retail Estates NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Chevron and Retail Estates

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

The idea behind Chevron and Retail Estates NV 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.