Correlation Between Chevron Corp and ProShares Short

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

By analyzing existing cross correlation between Chevron Corp and ProShares Short MidCap400, you can compare the effects of market volatilities on Chevron Corp and ProShares Short 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 ProShares Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chevron Corp and ProShares Short.

Diversification Opportunities for Chevron Corp and ProShares Short

0.09

Correlation Coefficient

Chevron Corp  ProShares Short

Significant diversification

The 3 months correlation between Chevron and ProShares is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Chevron Corp and ProShares Short MidCap400 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Short MidCap400 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 ProShares Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares Short MidCap400 has no effect on the direction of Chevron Corp i.e., Chevron Corp and ProShares Short go up and down completely randomly.

Pair Corralation between Chevron Corp and ProShares Short

Considering the 90-day investment horizon Chevron Corp is expected to generate 1.3 times more return on investment than ProShares Short. However, Chevron Corp is 1.3 times more volatile than ProShares Short MidCap400. It trades about 0.2 of its potential returns per unit of risk. ProShares Short MidCap400 is currently generating about 0.12 per unit of risk. If you would invest  14,140  in Chevron Corp on December 21, 2024 and sell it today you would earn a total of  2,335  from holding Chevron Corp or generate 16.51% return on investment over 90 days.

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

Chevron Corp  vs.  ProShares Short MidCap400

Chevron Corp

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chevron Corp are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Chevron Corp showed solid returns over the last few months and may actually be approaching a breakup point.

ProShares Short MidCap400

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Short MidCap400 are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, ProShares Short may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Chevron Corp and ProShares Short

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

The idea behind Chevron Corp and ProShares Short MidCap400 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.