Correlation Between Chevron and LPKF Laser

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

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

Diversification Opportunities for Chevron and LPKF Laser

0.3

Correlation Coefficient

Chevron  LPKF Laser

Weak diversification

The 3 months correlation between Chevron and LPKF is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Chevron and LPKF Laser Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LPKF Laser Electronics 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 LPKF Laser. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LPKF Laser Electronics has no effect on the direction of Chevron i.e., Chevron and LPKF Laser go up and down completely randomly.

Pair Corralation between Chevron and LPKF Laser

Assuming the 90 days trading horizon Chevron is expected to generate 0.6 times more return on investment than LPKF Laser. However, Chevron is 1.68 times less risky than LPKF Laser. It trades about 0.13 of its potential returns per unit of risk. LPKF Laser Electronics is currently generating about -0.05 per unit of risk. If you would invest  13,542  in Chevron on December 21, 2024 and sell it today you would earn a total of  1,612  from holding Chevron or generate 11.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

Chevron  vs.  LPKF Laser Electronics

Chevron

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chevron are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Chevron unveiled solid returns over the last few months and may actually be approaching a breakup point.

LPKF Laser Electronics

Risk-Adjusted Performance

Very Weak

Over the last 90 days LPKF Laser Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Chevron and LPKF Laser

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

The idea behind Chevron and LPKF Laser Electronics 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.