Correlation Between PPL and Occidental

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

By analyzing existing cross correlation between PPL Corporation and Occidental Petroleum 44, you can compare the effects of market volatilities on PPL and Occidental 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 PPL with a short position of Occidental. Check out your portfolio center. Please also check ongoing floating volatility patterns of PPL and Occidental.

Diversification Opportunities for PPL and Occidental

-0.15

Correlation Coefficient

PPL  Occidental

Good diversification

The 3 months correlation between PPL and Occidental is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding PPL Corp. and Occidental Petroleum 44 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Occidental Petroleum and PPL 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 PPL Corporation are associated (or correlated) with Occidental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Occidental Petroleum has no effect on the direction of PPL i.e., PPL and Occidental go up and down completely randomly.

Pair Corralation between PPL and Occidental

Considering the 90-day investment horizon PPL Corporation is expected to generate 0.74 times more return on investment than Occidental. However, PPL Corporation is 1.36 times less risky than Occidental. It trades about -0.21 of its potential returns per unit of risk. Occidental Petroleum 44 is currently generating about -0.4 per unit of risk. If you would invest  3,289  in PPL Corporation on October 8, 2024 and sell it today you would lose (116.00) from holding PPL Corporation or give up 3.53% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	78.95%
Values	Daily Returns

PPL Corp.  vs.  Occidental Petroleum 44

PPL Corporation

Risk-Adjusted Performance

0 of 100

Weak

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

Occidental Petroleum

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Occidental Petroleum 44 are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Occidental sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PPL and Occidental

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

The idea behind PPL Corporation and Occidental Petroleum 44 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.