Correlation Between Chevron Corp and First Trust

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

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

Diversification Opportunities for Chevron Corp and First Trust

-0.35

Correlation Coefficient

Chevron Corp  First Trust

Very good diversification

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

Pair Corralation between Chevron Corp and First Trust

Considering the 90-day investment horizon Chevron Corp is expected to under-perform the First Trust. In addition to that, Chevron Corp is 8.23 times more volatile than First Trust TCW. It trades about -0.3 of its total potential returns per unit of risk. First Trust TCW is currently generating about 0.17 per unit of volatility. If you would invest  2,454  in First Trust TCW on September 20, 2024 and sell it today you would earn a total of  12.00  from holding First Trust TCW or generate 0.49% return on investment over 90 days.

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

Chevron Corp  vs.  First Trust TCW

Chevron Corp

Risk-Adjusted Performance

3 of 100

Very Weak

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

First Trust TCW

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust TCW has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, First Trust is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Chevron Corp and First Trust

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

The idea behind Chevron Corp and First Trust TCW 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.