Correlation Between Chevron Corp and Simplify Equity

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

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

Diversification Opportunities for Chevron Corp and Simplify Equity

0.88

Correlation Coefficient

Chevron Corp  Simplify Equity

Very poor diversification

The 3 months correlation between Chevron and Simplify is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Chevron Corp and Simplify Equity PLUS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Simplify Equity PLUS 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 Simplify Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Simplify Equity PLUS has no effect on the direction of Chevron Corp i.e., Chevron Corp and Simplify Equity go up and down completely randomly.

Pair Corralation between Chevron Corp and Simplify Equity

Considering the 90-day investment horizon Chevron Corp is expected to generate 1.69 times more return on investment than Simplify Equity. However, Chevron Corp is 1.69 times more volatile than Simplify Equity PLUS. It trades about 0.22 of its potential returns per unit of risk. Simplify Equity PLUS is currently generating about 0.21 per unit of risk. If you would invest  13,951  in Chevron Corp on September 5, 2024 and sell it today you would earn a total of  2,241  from holding Chevron Corp or generate 16.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Chevron Corp  vs.  Simplify Equity PLUS

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.

Simplify Equity PLUS

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Simplify Equity PLUS are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Simplify Equity may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Chevron Corp and Simplify Equity

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

The idea behind Chevron Corp and Simplify Equity PLUS 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 Transaction History module to view history of all your transactions and understand their impact on performance.