Correlation Between California Resources and Cross Timbers

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

By analyzing existing cross correlation between California Resources Corp and Cross Timbers Royalty, you can compare the effects of market volatilities on California Resources and Cross Timbers 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 California Resources with a short position of Cross Timbers. Check out your portfolio center. Please also check ongoing floating volatility patterns of California Resources and Cross Timbers.

Diversification Opportunities for California Resources and Cross Timbers

-0.18

Correlation Coefficient

California Resources  Cross Timbers

Good diversification

The 3 months correlation between California and Cross is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding California Resources Corp and Cross Timbers Royalty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cross Timbers Royalty and California Resources 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 California Resources Corp are associated (or correlated) with Cross Timbers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cross Timbers Royalty has no effect on the direction of California Resources i.e., California Resources and Cross Timbers go up and down completely randomly.

Pair Corralation between California Resources and Cross Timbers

Considering the 90-day investment horizon California Resources Corp is expected to under-perform the Cross Timbers. In addition to that, California Resources is 1.03 times more volatile than Cross Timbers Royalty. It trades about -0.21 of its total potential returns per unit of risk. Cross Timbers Royalty is currently generating about 0.0 per unit of volatility. If you would invest  1,077  in Cross Timbers Royalty on November 29, 2024 and sell it today you would lose (6.00) from holding Cross Timbers Royalty or give up 0.56% of portfolio value over 90 days.

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

California Resources Corp  vs.  Cross Timbers Royalty

California Resources Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days California Resources Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Cross Timbers Royalty

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cross Timbers Royalty has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Cross Timbers is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with California Resources and Cross Timbers

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

The idea behind California Resources Corp and Cross Timbers Royalty 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.