Correlation Between Vital Energy and Occidental Petroleum

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

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

Diversification Opportunities for Vital Energy and Occidental Petroleum

0.5

Correlation Coefficient

Vital Energy  Occidental Petroleum

Very weak diversification

The 3 months correlation between Vital and Occidental is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Vital Energy and Occidental Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Occidental Petroleum and Vital 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 Vital Energy are associated (or correlated) with Occidental Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Occidental Petroleum has no effect on the direction of Vital Energy i.e., Vital Energy and Occidental Petroleum go up and down completely randomly.

Pair Corralation between Vital Energy and Occidental Petroleum

Given the investment horizon of 90 days Vital Energy is expected to under-perform the Occidental Petroleum. In addition to that, Vital Energy is 2.0 times more volatile than Occidental Petroleum. It trades about -0.07 of its total potential returns per unit of risk. Occidental Petroleum is currently generating about -0.08 per unit of volatility. If you would invest  5,937  in Occidental Petroleum on September 3, 2024 and sell it today you would lose (895.00) from holding Occidental Petroleum or give up 15.07% of portfolio value over 90 days.

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

Vital Energy  vs.  Occidental Petroleum

Vital Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vital Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Vital Energy is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Occidental Petroleum

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Occidental Petroleum has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Vital Energy and Occidental Petroleum

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

The idea behind Vital Energy and Occidental Petroleum 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.