Correlation Between Imperial Oil and Chevron Corp

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

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

Diversification Opportunities for Imperial Oil and Chevron Corp

0.89

Correlation Coefficient

Imperial Oil  Chevron Corp

Very poor diversification

The 3 months correlation between Imperial and Chevron is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Imperial Oil and Chevron Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chevron Corp and Imperial Oil 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 Imperial Oil are associated (or correlated) with Chevron Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chevron Corp has no effect on the direction of Imperial Oil i.e., Imperial Oil and Chevron Corp go up and down completely randomly.

Pair Corralation between Imperial Oil and Chevron Corp

Considering the 90-day investment horizon Imperial Oil is expected to generate 1.35 times more return on investment than Chevron Corp. However, Imperial Oil is 1.35 times more volatile than Chevron Corp. It trades about 0.19 of its potential returns per unit of risk. Chevron Corp is currently generating about 0.21 per unit of risk. If you would invest  6,708  in Imperial Oil on December 29, 2024 and sell it today you would earn a total of  519.00  from holding Imperial Oil or generate 7.74% return on investment over 90 days.

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

Imperial Oil  vs.  Chevron Corp

Imperial Oil

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Imperial Oil are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain primary indicators, Imperial Oil displayed solid returns over the last few months and may actually be approaching a breakup point.

Chevron Corp

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Chevron Corp are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Chevron Corp showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Imperial Oil and Chevron Corp

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

The idea behind Imperial Oil and Chevron 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.