Correlation Between Hess and APA

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

By analyzing existing cross correlation between Hess Corporation and APA Corporation, you can compare the effects of market volatilities on Hess and APA 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 Hess with a short position of APA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hess and APA.

Diversification Opportunities for Hess and APA

-0.31

Correlation Coefficient

Hess  APA

Very good diversification

The 3 months correlation between Hess and APA is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Hess Corp. and APA Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on APA Corporation and Hess 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 Hess Corporation are associated (or correlated) with APA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of APA Corporation has no effect on the direction of Hess i.e., Hess and APA go up and down completely randomly.

Pair Corralation between Hess and APA

Assuming the 90 days trading horizon Hess Corporation is expected to generate 0.38 times more return on investment than APA. However, Hess Corporation is 2.65 times less risky than APA. It trades about 0.01 of its potential returns per unit of risk. APA Corporation is currently generating about -0.02 per unit of risk. If you would invest  38,069  in Hess Corporation on October 5, 2024 and sell it today you would lose (145.00) from holding Hess Corporation or give up 0.38% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	71.28%
Values	Daily Returns

Hess Corp.  vs.  APA Corp.

Hess

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hess Corporation are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, Hess is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

APA Corporation

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days APA Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, APA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Hess and APA

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

The idea behind Hess Corporation and APA Corporation 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.