Correlation Between Chevron Corp and Aqua Power

Can any of the company-specific risk be diversified away by investing in both Chevron Corp and Aqua Power 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 Chevron Corp and Aqua Power into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Chevron Corp and Aqua Power Systems, you can compare the effects of market volatilities on Chevron Corp and Aqua Power 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 Chevron Corp with a short position of Aqua Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chevron Corp and Aqua Power.

Diversification Opportunities for Chevron Corp and Aqua Power

0.74

Correlation Coefficient

Chevron Corp  Aqua Power

Poor diversification

The 3 months correlation between Chevron and Aqua is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Chevron Corp and Aqua Power Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aqua Power Systems and Chevron Corp 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 Chevron Corp are associated (or correlated) with Aqua Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aqua Power Systems has no effect on the direction of Chevron Corp i.e., Chevron Corp and Aqua Power go up and down completely randomly.

Pair Corralation between Chevron Corp and Aqua Power

Considering the 90-day investment horizon Chevron Corp is expected to generate 572.47 times less return on investment than Aqua Power. But when comparing it to its historical volatility, Chevron Corp is 9.88 times less risky than Aqua Power. It trades about 0.0 of its potential returns per unit of risk. Aqua Power Systems is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1.95  in Aqua Power Systems on September 17, 2024 and sell it today you would earn a total of  0.45  from holding Aqua Power Systems or generate 23.08% return on investment over 90 days.

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

Chevron Corp  vs.  Aqua Power Systems

Chevron Corp

Risk-Adjusted Performance

5 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chevron Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Chevron Corp is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Aqua Power Systems

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aqua Power Systems are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Aqua Power demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chevron Corp and Aqua Power

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

The idea behind Chevron Corp and Aqua Power Systems 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.