Correlation Between California Resources and Valeura Energy

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

Diversification Opportunities for California Resources and Valeura Energy

0.21

Correlation Coefficient

California Resources  Valeura Energy

Modest diversification

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

Pair Corralation between California Resources and Valeura Energy

Considering the 90-day investment horizon California Resources Corp is expected to under-perform the Valeura Energy. But the stock apears to be less risky and, when comparing its historical volatility, California Resources Corp is 1.79 times less risky than Valeura Energy. The stock trades about -0.01 of its potential returns per unit of risk. The Valeura Energy is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  338.00  in Valeura Energy on October 4, 2024 and sell it today you would earn a total of  165.00  from holding Valeura Energy or generate 48.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

California Resources Corp  vs.  Valeura Energy

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.

Valeura Energy

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Valeura Energy are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Valeura Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with California Resources and Valeura Energy

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

The idea behind California Resources Corp and Valeura Energy 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.