Correlation Between Canadian Natural and CHEVRON CDR

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

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

Diversification Opportunities for Canadian Natural and CHEVRON CDR

0.21

Correlation Coefficient

Canadian Natural  CHEVRON CDR

Modest diversification

The 3 months correlation between Canadian and CHEVRON is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Natural Resources and CHEVRON CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHEVRON CDR and Canadian Natural 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 Canadian Natural Resources are associated (or correlated) with CHEVRON CDR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHEVRON CDR has no effect on the direction of Canadian Natural i.e., Canadian Natural and CHEVRON CDR go up and down completely randomly.

Pair Corralation between Canadian Natural and CHEVRON CDR

Assuming the 90 days trading horizon Canadian Natural Resources is expected to generate 1.03 times more return on investment than CHEVRON CDR. However, Canadian Natural is 1.03 times more volatile than CHEVRON CDR. It trades about -0.37 of its potential returns per unit of risk. CHEVRON CDR is currently generating about -0.42 per unit of risk. If you would invest  4,770  in Canadian Natural Resources on September 22, 2024 and sell it today you would lose (520.00) from holding Canadian Natural Resources or give up 10.9% of portfolio value over 90 days.

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

Canadian Natural Resources  vs.  CHEVRON CDR

Canadian Natural Res

Risk-Adjusted Performance

0 of 100

Very Weak

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

CHEVRON CDR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CHEVRON CDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, CHEVRON CDR is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Canadian Natural and CHEVRON CDR

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

The idea behind Canadian Natural Resources and CHEVRON CDR 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.