Correlation Between California Resources and Gran Tierra

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

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

Diversification Opportunities for California Resources and Gran Tierra

0.21

Correlation Coefficient

California Resources  Gran Tierra

Modest diversification

The 3 months correlation between California and Gran is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding California Resources Corp and Gran Tierra Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gran Tierra Energy and California Resources 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 California Resources Corp are associated (or correlated) with Gran Tierra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gran Tierra Energy has no effect on the direction of California Resources i.e., California Resources and Gran Tierra go up and down completely randomly.

Pair Corralation between California Resources and Gran Tierra

Considering the 90-day investment horizon California Resources is expected to generate 3.29 times less return on investment than Gran Tierra. But when comparing it to its historical volatility, California Resources Corp is 1.24 times less risky than Gran Tierra. It trades about 0.02 of its potential returns per unit of risk. Gran Tierra Energy is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  607.00  in Gran Tierra Energy on September 19, 2024 and sell it today you would earn a total of  52.00  from holding Gran Tierra Energy or generate 8.57% return on investment over 90 days.

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

California Resources Corp  vs.  Gran Tierra Energy

California Resources Corp

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in California Resources Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, California Resources is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Gran Tierra Energy

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Gran Tierra Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Gran Tierra may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with California Resources and Gran Tierra

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

The idea behind California Resources Corp and Gran Tierra Energy 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.