Correlation Between California Resources and Magnolia Oil

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

Diversification Opportunities for California Resources and Magnolia Oil

0.91

Correlation Coefficient

California Resources  Magnolia Oil

Almost no diversification

The 3 months correlation between California and Magnolia is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding California Resources Corp and Magnolia Oil Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magnolia Oil Gas 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 Magnolia Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Magnolia Oil Gas has no effect on the direction of California Resources i.e., California Resources and Magnolia Oil go up and down completely randomly.

Pair Corralation between California Resources and Magnolia Oil

Considering the 90-day investment horizon California Resources Corp is expected to generate 1.07 times more return on investment than Magnolia Oil. However, California Resources is 1.07 times more volatile than Magnolia Oil Gas. It trades about 0.13 of its potential returns per unit of risk. Magnolia Oil Gas is currently generating about 0.12 per unit of risk. If you would invest  4,977  in California Resources Corp on August 31, 2024 and sell it today you would earn a total of  870.00  from holding California Resources Corp or generate 17.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

California Resources Corp  vs.  Magnolia Oil Gas

California Resources Corp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in California Resources Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, California Resources exhibited solid returns over the last few months and may actually be approaching a breakup point.

Magnolia Oil Gas

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Magnolia Oil Gas are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating technical and fundamental indicators, Magnolia Oil showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with California Resources and Magnolia Oil

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

The idea behind California Resources Corp and Magnolia Oil Gas 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.