Correlation Between Chevron Corp and Aberdeen Japan

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

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

Diversification Opportunities for Chevron Corp and Aberdeen Japan

0.47

Correlation Coefficient

Chevron Corp  Aberdeen Japan

Very weak diversification

The 3 months correlation between Chevron and Aberdeen is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Chevron Corp and Aberdeen Japan Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aberdeen Japan 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 Aberdeen Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aberdeen Japan Equity has no effect on the direction of Chevron Corp i.e., Chevron Corp and Aberdeen Japan go up and down completely randomly.

Pair Corralation between Chevron Corp and Aberdeen Japan

Considering the 90-day investment horizon Chevron Corp is expected to generate 1.5 times more return on investment than Aberdeen Japan. However, Chevron Corp is 1.5 times more volatile than Aberdeen Japan Equity. It trades about 0.18 of its potential returns per unit of risk. Aberdeen Japan Equity is currently generating about 0.07 per unit of risk. If you would invest  14,510  in Chevron Corp on December 3, 2024 and sell it today you would earn a total of  1,352  from holding Chevron Corp or generate 9.32% return on investment over 90 days.

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

Chevron Corp  vs.  Aberdeen Japan Equity

Chevron Corp

Risk-Adjusted Performance

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 latest stock price disturbance, may contribute to short-term losses for the investors.

Aberdeen Japan Equity

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aberdeen Japan Equity has generated negative risk-adjusted returns adding no value to fund investors. Even with relatively invariable technical and fundamental indicators, Aberdeen Japan is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Chevron Corp and Aberdeen Japan

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

The idea behind Chevron Corp and Aberdeen Japan 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.