Correlation Between NEW MILLENNIUM and Occidental Petroleum

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

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

Diversification Opportunities for NEW MILLENNIUM and Occidental Petroleum

0.72

Correlation Coefficient

NEW MILLENNIUM  Occidental Petroleum

Poor diversification

The 3 months correlation between NEW and Occidental is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding NEW MILLENNIUM IRON and Occidental Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Occidental Petroleum and NEW MILLENNIUM 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 NEW MILLENNIUM IRON 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 NEW MILLENNIUM i.e., NEW MILLENNIUM and Occidental Petroleum go up and down completely randomly.

Pair Corralation between NEW MILLENNIUM and Occidental Petroleum

Assuming the 90 days trading horizon NEW MILLENNIUM IRON is expected to under-perform the Occidental Petroleum. In addition to that, NEW MILLENNIUM is 1.19 times more volatile than Occidental Petroleum. It trades about -0.09 of its total potential returns per unit of risk. Occidental Petroleum is currently generating about -0.02 per unit of volatility. If you would invest  4,567  in Occidental Petroleum on December 23, 2024 and sell it today you would lose (154.00) from holding Occidental Petroleum or give up 3.37% of portfolio value over 90 days.

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

NEW MILLENNIUM IRON  vs.  Occidental Petroleum

NEW MILLENNIUM IRON

Risk-Adjusted Performance

Very Weak

Over the last 90 days NEW MILLENNIUM IRON has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Occidental Petroleum

Risk-Adjusted Performance

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 comparatively stable fundamental indicators, Occidental Petroleum is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with NEW MILLENNIUM and Occidental Petroleum

The main advantage of trading using opposite NEW MILLENNIUM and Occidental Petroleum positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NEW MILLENNIUM 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 NEW MILLENNIUM IRON 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.