Correlation Between Falcon Energy and CHEVRON CDR

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

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

Diversification Opportunities for Falcon Energy and CHEVRON CDR

0.79

Correlation Coefficient

Falcon Energy  CHEVRON CDR

Poor diversification

The 3 months correlation between Falcon and CHEVRON is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Falcon Energy Materials and CHEVRON CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHEVRON CDR and Falcon 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 Falcon Energy Materials are associated (or correlated) with CHEVRON CDR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHEVRON CDR has no effect on the direction of Falcon Energy i.e., Falcon Energy and CHEVRON CDR go up and down completely randomly.

Pair Corralation between Falcon Energy and CHEVRON CDR

Assuming the 90 days trading horizon Falcon Energy Materials is expected to generate 3.06 times more return on investment than CHEVRON CDR. However, Falcon Energy is 3.06 times more volatile than CHEVRON CDR. It trades about 0.03 of its potential returns per unit of risk. CHEVRON CDR is currently generating about 0.01 per unit of risk. If you would invest  62.00  in Falcon Energy Materials on September 12, 2024 and sell it today you would earn a total of  7.00  from holding Falcon Energy Materials or generate 11.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	87.04%
Values	Daily Returns

Falcon Energy Materials  vs.  CHEVRON CDR

Falcon Energy Materials

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Falcon Energy Materials are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal fundamental indicators, Falcon Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

CHEVRON CDR

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CHEVRON CDR are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, CHEVRON CDR exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Falcon Energy and CHEVRON CDR

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

The idea behind Falcon Energy Materials and CHEVRON CDR 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.