Correlation Between Occidental Petroleum and California Resources

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

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

Diversification Opportunities for Occidental Petroleum and California Resources

-0.49

Correlation Coefficient

Occidental Petroleum  California Resources

Very good diversification

The 3 months correlation between Occidental and California is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Occidental Petroleum and California Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on California Resources and Occidental Petroleum 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 Occidental 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 has no effect on the direction of Occidental Petroleum i.e., Occidental Petroleum and California Resources go up and down completely randomly.

Pair Corralation between Occidental Petroleum and California Resources

Considering the 90-day investment horizon Occidental Petroleum is expected to under-perform the California Resources. But the stock apears to be less risky and, when comparing its historical volatility, Occidental Petroleum is 5.22 times less risky than California Resources. The stock trades about -0.06 of its potential returns per unit of risk. The California Resources is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,710  in California Resources on October 11, 2024 and sell it today you would earn a total of  2.00  from holding California Resources or generate 0.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	17.74%
Values	Daily Returns

Occidental Petroleum  vs.  California Resources

Occidental Petroleum

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Occidental Petroleum has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Occidental Petroleum is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

California Resources

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days California Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly fragile basic indicators, California Resources showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Occidental Petroleum and California Resources

The main advantage of trading using opposite Occidental Petroleum and California Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Occidental Petroleum 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 Occidental Petroleum and California Resources 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.