Correlation Between Chevron and Kunlun Energy

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

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

Diversification Opportunities for Chevron and Kunlun Energy

-0.05

Correlation Coefficient

Chevron  Kunlun Energy

Good diversification

The 3 months correlation between Chevron and Kunlun is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Chevron and Kunlun Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kunlun Energy and Chevron 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 are associated (or correlated) with Kunlun Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kunlun Energy has no effect on the direction of Chevron i.e., Chevron and Kunlun Energy go up and down completely randomly.

Pair Corralation between Chevron and Kunlun Energy

Assuming the 90 days horizon Chevron is expected to generate 11.22 times less return on investment than Kunlun Energy. But when comparing it to its historical volatility, Chevron is 1.24 times less risky than Kunlun Energy. It trades about 0.01 of its potential returns per unit of risk. Kunlun Energy is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  89.00  in Kunlun Energy on October 11, 2024 and sell it today you would earn a total of  5.00  from holding Kunlun Energy or generate 5.62% return on investment over 90 days.

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

Chevron  vs.  Kunlun Energy

Chevron

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Chevron are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Chevron may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Kunlun Energy

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Kunlun Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain forward-looking indicators, Kunlun Energy may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Chevron and Kunlun Energy

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

The idea behind Chevron and Kunlun Energy 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.

Check out your portfolio center.

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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.