Correlation Between Chevron Corp and BankFirst Capital

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

By analyzing existing cross correlation between Chevron Corp and BankFirst Capital, you can compare the effects of market volatilities on Chevron Corp and BankFirst Capital 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 BankFirst Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chevron Corp and BankFirst Capital.

Diversification Opportunities for Chevron Corp and BankFirst Capital

0.22

Correlation Coefficient

Chevron Corp  BankFirst Capital

Modest diversification

The 3 months correlation between Chevron and BankFirst is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Chevron Corp and BankFirst Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BankFirst Capital 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 BankFirst Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BankFirst Capital has no effect on the direction of Chevron Corp i.e., Chevron Corp and BankFirst Capital go up and down completely randomly.

Pair Corralation between Chevron Corp and BankFirst Capital

Considering the 90-day investment horizon Chevron Corp is expected to generate 2.02 times more return on investment than BankFirst Capital. However, Chevron Corp is 2.02 times more volatile than BankFirst Capital. It trades about 0.2 of its potential returns per unit of risk. BankFirst Capital is currently generating about -0.03 per unit of risk. If you would invest  14,150  in Chevron Corp on December 28, 2024 and sell it today you would earn a total of  2,459  from holding Chevron Corp or generate 17.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Chevron Corp  vs.  BankFirst Capital

Chevron Corp

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Chevron Corp are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Chevron Corp showed solid returns over the last few months and may actually be approaching a breakup point.

BankFirst Capital

Risk-Adjusted Performance

Very Weak

Over the last 90 days BankFirst Capital has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, BankFirst Capital is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Chevron Corp and BankFirst Capital

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

The idea behind Chevron Corp and BankFirst Capital 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.