Correlation Between Chevron Corp and DNA Brands

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

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

Diversification Opportunities for Chevron Corp and DNA Brands

-0.35

Correlation Coefficient

Chevron Corp  DNA Brands

Very good diversification

The 3 months correlation between Chevron and DNA is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Chevron Corp and DNA Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DNA Brands 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 DNA Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DNA Brands has no effect on the direction of Chevron Corp i.e., Chevron Corp and DNA Brands go up and down completely randomly.

Pair Corralation between Chevron Corp and DNA Brands

Considering the 90-day investment horizon Chevron Corp is expected to generate 88.18 times less return on investment than DNA Brands. But when comparing it to its historical volatility, Chevron Corp is 31.85 times less risky than DNA Brands. It trades about 0.04 of its potential returns per unit of risk. DNA Brands is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  0.04  in DNA Brands on September 5, 2024 and sell it today you would lose (0.03) from holding DNA Brands or give up 75.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.21%
Values	Daily Returns

Chevron Corp  vs.  DNA Brands

Chevron Corp

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Chevron Corp are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Chevron Corp showed solid returns over the last few months and may actually be approaching a breakup point.

DNA Brands

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in DNA Brands are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, DNA Brands showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chevron Corp and DNA Brands

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

The idea behind Chevron Corp and DNA Brands 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.