Correlation Between Evolution Petroleum and California Resources

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

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

Diversification Opportunities for Evolution Petroleum and California Resources

0.78

Correlation Coefficient

Evolution Petroleum  California Resources

Poor diversification

The 3 months correlation between Evolution and California is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Evolution Petroleum and California Resources Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on California Resources Corp and Evolution 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 Evolution Petroleum are associated (or correlated) with California Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of California Resources Corp has no effect on the direction of Evolution Petroleum i.e., Evolution Petroleum and California Resources go up and down completely randomly.

Pair Corralation between Evolution Petroleum and California Resources

Considering the 90-day investment horizon Evolution Petroleum is expected to under-perform the California Resources. In addition to that, Evolution Petroleum is 1.02 times more volatile than California Resources Corp. It trades about -0.02 of its total potential returns per unit of risk. California Resources Corp is currently generating about 0.02 per unit of volatility. If you would invest  4,257  in California Resources Corp on March 28, 2025 and sell it today you would earn a total of  291.00  from holding California Resources Corp or generate 6.84% return on investment over 90 days.

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

Evolution Petroleum  vs.  California Resources Corp

Evolution Petroleum

Risk-Adjusted Performance

Very Weak

Over the last 90 days Evolution Petroleum has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Evolution Petroleum is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

California Resources Corp

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in California Resources Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, California Resources may actually be approaching a critical reversion point that can send shares even higher in July 2025.

Pair Trading with Evolution Petroleum and California Resources

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

The idea behind Evolution Petroleum and California Resources Corp 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.