Correlation Between California Resources and Gulf Keystone

Can any of the company-specific risk be diversified away by investing in both California Resources and Gulf Keystone 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 Gulf Keystone 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 Gulf Keystone Petroleum, you can compare the effects of market volatilities on California Resources and Gulf Keystone 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 Gulf Keystone. Check out your portfolio center. Please also check ongoing floating volatility patterns of California Resources and Gulf Keystone.

Diversification Opportunities for California Resources and Gulf Keystone

0.39

Correlation Coefficient

California Resources  Gulf Keystone

Weak diversification

The 3 months correlation between California and Gulf is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding California Resources Corp and Gulf Keystone Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gulf Keystone Petroleum 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 Gulf Keystone. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gulf Keystone Petroleum has no effect on the direction of California Resources i.e., California Resources and Gulf Keystone go up and down completely randomly.

Pair Corralation between California Resources and Gulf Keystone

Considering the 90-day investment horizon California Resources is expected to generate 2.31 times less return on investment than Gulf Keystone. But when comparing it to its historical volatility, California Resources Corp is 3.31 times less risky than Gulf Keystone. It trades about 0.05 of its potential returns per unit of risk. Gulf Keystone Petroleum is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  178.00  in Gulf Keystone Petroleum on October 5, 2024 and sell it today you would earn a total of  8.00  from holding Gulf Keystone Petroleum or generate 4.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.56%
Values	Daily Returns

California Resources Corp  vs.  Gulf Keystone Petroleum

California Resources Corp

Risk-Adjusted Performance

0 of 100

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 rather sound basic indicators, California Resources is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Gulf Keystone Petroleum

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Gulf Keystone Petroleum are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Gulf Keystone reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with California Resources and Gulf Keystone

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

The idea behind California Resources Corp and Gulf Keystone Petroleum 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.