Correlation Between Chevron Corp and Equinor ASA

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

By analyzing existing cross correlation between Chevron Corp and Equinor ASA ADR, you can compare the effects of market volatilities on Chevron Corp and Equinor ASA 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 Equinor ASA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chevron Corp and Equinor ASA.

Diversification Opportunities for Chevron Corp and Equinor ASA

-0.42

Correlation Coefficient

Chevron Corp  Equinor ASA

Very good diversification

The 3 months correlation between Chevron and Equinor is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Chevron Corp and Equinor ASA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equinor ASA ADR 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 Equinor ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equinor ASA ADR has no effect on the direction of Chevron Corp i.e., Chevron Corp and Equinor ASA go up and down completely randomly.

Pair Corralation between Chevron Corp and Equinor ASA

Considering the 90-day investment horizon Chevron Corp is expected to generate 0.6 times more return on investment than Equinor ASA. However, Chevron Corp is 1.67 times less risky than Equinor ASA. It trades about 0.14 of its potential returns per unit of risk. Equinor ASA ADR is currently generating about -0.07 per unit of risk. If you would invest  14,385  in Chevron Corp on August 21, 2024 and sell it today you would earn a total of  1,575  from holding Chevron Corp or generate 10.95% return on investment over 90 days.

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

Chevron Corp  vs.  Equinor ASA ADR

Chevron Corp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chevron Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Chevron Corp may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Equinor ASA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Equinor ASA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest conflicting performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Chevron Corp and Equinor ASA

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

The idea behind Chevron Corp and Equinor ASA ADR 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.