Correlation Between Gulf Keystone and California Resources

Can any of the company-specific risk be diversified away by investing in both Gulf Keystone and California Resources 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 Gulf Keystone and California Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Gulf Keystone Petroleum and California Resources Corp, you can compare the effects of market volatilities on Gulf Keystone and California Resources 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 Gulf Keystone with a short position of California Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gulf Keystone and California Resources.

Diversification Opportunities for Gulf Keystone and California Resources

0.39

Correlation Coefficient

Gulf Keystone  California Resources

Weak diversification

The 3 months correlation between Gulf and California is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Gulf Keystone Petroleum and California Resources Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on California Resources Corp and Gulf Keystone 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 Gulf Keystone Petroleum are associated (or correlated) with California Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of California Resources Corp has no effect on the direction of Gulf Keystone i.e., Gulf Keystone and California Resources go up and down completely randomly.

Pair Corralation between Gulf Keystone and California Resources

Assuming the 90 days horizon Gulf Keystone Petroleum is expected to generate 3.31 times more return on investment than California Resources. However, Gulf Keystone is 3.31 times more volatile than California Resources Corp. It trades about 0.04 of its potential returns per unit of risk. California Resources Corp is currently generating about 0.05 per unit of risk. If you would invest  178.00  in Gulf Keystone Petroleum on October 5, 2024 and sell it today you would earn a total of  8.00  from holding Gulf Keystone Petroleum or generate 4.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.56%
Values	Daily Returns

Gulf Keystone Petroleum  vs.  California Resources Corp

Gulf Keystone Petroleum

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Gulf Keystone Petroleum are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Gulf Keystone reported solid returns over the last few months and may actually be approaching a breakup point.

California Resources Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days California Resources Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, California Resources is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Gulf Keystone and California Resources

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

The idea behind Gulf Keystone Petroleum and California Resources Corp 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 Anywhere module to track or share privately all of your investments from the convenience of any device.