Correlation Between Chevron Corp and Davis Select

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

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

Diversification Opportunities for Chevron Corp and Davis Select

0.78

Correlation Coefficient

Chevron Corp  Davis Select

Poor diversification

The 3 months correlation between Chevron and Davis is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Chevron Corp and Davis Select Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davis Select Equity 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 Davis Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davis Select Equity has no effect on the direction of Chevron Corp i.e., Chevron Corp and Davis Select go up and down completely randomly.

Pair Corralation between Chevron Corp and Davis Select

Considering the 90-day investment horizon Chevron Corp is expected to generate 1.58 times more return on investment than Davis Select. However, Chevron Corp is 1.58 times more volatile than Davis Select Equity. It trades about -0.05 of its potential returns per unit of risk. Davis Select Equity is currently generating about -0.09 per unit of risk. If you would invest  15,492  in Chevron Corp on October 11, 2024 and sell it today you would lose (462.00) from holding Chevron Corp or give up 2.98% of portfolio value over 90 days.

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

Chevron Corp  vs.  Davis Select Equity

Chevron Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chevron Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Chevron Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Davis Select Equity

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Davis Select Equity are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Davis Select is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Chevron Corp and Davis Select

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

The idea behind Chevron Corp and Davis Select Equity 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.