Correlation Between Chevron Corp and Diamond Offshore

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

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

Diversification Opportunities for Chevron Corp and Diamond Offshore

-0.39

Correlation Coefficient

Chevron Corp  Diamond Offshore

Very good diversification

The 3 months correlation between Chevron and Diamond is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Chevron Corp and Diamond Offshore Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamond Offshore Drilling and Chevron Corp 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 Corp are associated (or correlated) with Diamond Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamond Offshore Drilling has no effect on the direction of Chevron Corp i.e., Chevron Corp and Diamond Offshore go up and down completely randomly.

Pair Corralation between Chevron Corp and Diamond Offshore

Considering the 90-day investment horizon Chevron Corp is expected to generate 0.02 times more return on investment than Diamond Offshore. However, Chevron Corp is 50.81 times less risky than Diamond Offshore. It trades about 0.18 of its potential returns per unit of risk. Diamond Offshore Drilling is currently generating about -0.58 per unit of risk. If you would invest  14,320  in Chevron Corp on September 3, 2024 and sell it today you would earn a total of  1,901  from holding Chevron Corp or generate 13.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	4.69%
Values	Daily Returns

Chevron Corp  vs.  Diamond Offshore Drilling

Chevron Corp

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chevron Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Chevron Corp showed solid returns over the last few months and may actually be approaching a breakup point.

Diamond Offshore Drilling

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diamond Offshore Drilling has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Chevron Corp and Diamond Offshore

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

The idea behind Chevron Corp and Diamond Offshore Drilling 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 Anywhere module to track or share privately all of your investments from the convenience of any device.