Correlation Between Occidental Petroleum and Pioneer Natural

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

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

Diversification Opportunities for Occidental Petroleum and Pioneer Natural

0.04

Correlation Coefficient

Occidental Petroleum  Pioneer Natural

Significant diversification

The 3 months correlation between Occidental and Pioneer is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Occidental Petroleum and Pioneer Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pioneer Natural Resources and Occidental Petroleum 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 Occidental Petroleum are associated (or correlated) with Pioneer Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pioneer Natural Resources has no effect on the direction of Occidental Petroleum i.e., Occidental Petroleum and Pioneer Natural go up and down completely randomly.

Pair Corralation between Occidental Petroleum and Pioneer Natural

Assuming the 90 days trading horizon Occidental Petroleum is expected to under-perform the Pioneer Natural. But the stock apears to be less risky and, when comparing its historical volatility, Occidental Petroleum is 38.67 times less risky than Pioneer Natural. The stock trades about -0.04 of its potential returns per unit of risk. The Pioneer Natural Resources is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  20,776  in Pioneer Natural Resources on September 26, 2024 and sell it today you would lose (20,736) from holding Pioneer Natural Resources or give up 99.81% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	93.67%
Values	Daily Returns

Occidental Petroleum  vs.  Pioneer Natural Resources

Occidental Petroleum

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Occidental Petroleum are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, Occidental Petroleum is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pioneer Natural Resources

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Pioneer Natural Resources are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Pioneer Natural reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Occidental Petroleum and Pioneer Natural

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

The idea behind Occidental Petroleum and Pioneer Natural Resources 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.