Correlation Between Occidental Petroleum and GulfSlope Energy

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

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

Diversification Opportunities for Occidental Petroleum and GulfSlope Energy

0.04

Correlation Coefficient

Occidental Petroleum  GulfSlope Energy

Significant diversification

The 3 months correlation between Occidental and GulfSlope is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Occidental Petroleum and GulfSlope Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GulfSlope Energy 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 GulfSlope Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GulfSlope Energy has no effect on the direction of Occidental Petroleum i.e., Occidental Petroleum and GulfSlope Energy go up and down completely randomly.

Pair Corralation between Occidental Petroleum and GulfSlope Energy

Considering the 90-day investment horizon Occidental Petroleum is expected to under-perform the GulfSlope Energy. But the stock apears to be less risky and, when comparing its historical volatility, Occidental Petroleum is 38.28 times less risky than GulfSlope Energy. The stock trades about -0.05 of its potential returns per unit of risk. The GulfSlope Energy is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  0.10  in GulfSlope Energy on September 12, 2024 and sell it today you would lose (0.09) from holding GulfSlope Energy or give up 90.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.7%
Values	Daily Returns

Occidental Petroleum  vs.  GulfSlope Energy

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.

GulfSlope Energy

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Occidental Petroleum and GulfSlope Energy

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

The idea behind Occidental Petroleum and GulfSlope Energy 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.