Correlation Between Chevron and EQUINOR ASA

Can any of the company-specific risk be diversified away by investing in both Chevron 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 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 and EQUINOR ASA DRN, you can compare the effects of market volatilities on Chevron 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 with a short position of EQUINOR ASA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chevron and EQUINOR ASA.

Diversification Opportunities for Chevron and EQUINOR ASA

0.39

Correlation Coefficient

Chevron  EQUINOR ASA

Weak diversification

The 3 months correlation between Chevron and EQUINOR is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Chevron and EQUINOR ASA DRN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EQUINOR ASA DRN 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 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 DRN has no effect on the direction of Chevron i.e., Chevron and EQUINOR ASA go up and down completely randomly.

Pair Corralation between Chevron and EQUINOR ASA

Assuming the 90 days trading horizon Chevron is expected to generate 1.09 times less return on investment than EQUINOR ASA. But when comparing it to its historical volatility, Chevron is 1.34 times less risky than EQUINOR ASA. It trades about 0.08 of its potential returns per unit of risk. EQUINOR ASA DRN is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  6,843  in EQUINOR ASA DRN on December 25, 2024 and sell it today you would earn a total of  504.00  from holding EQUINOR ASA DRN or generate 7.37% return on investment over 90 days.

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

Chevron  vs.  EQUINOR ASA DRN

Chevron

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Chevron are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Chevron may actually be approaching a critical reversion point that can send shares even higher in April 2025.

EQUINOR ASA DRN

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in EQUINOR ASA DRN are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, EQUINOR ASA may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Chevron and EQUINOR ASA

The main advantage of trading using opposite Chevron and EQUINOR ASA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chevron 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 and EQUINOR ASA DRN 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 Transaction History module to view history of all your transactions and understand their impact on performance.