Correlation Between United Airlines and Chevron Corp

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

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

Diversification Opportunities for United Airlines and Chevron Corp

0.56

Correlation Coefficient

United Airlines  Chevron Corp

Very weak diversification

The 3 months correlation between United and Chevron is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding United Airlines Holdings and Chevron Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chevron Corp and United Airlines 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 United Airlines Holdings 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 United Airlines i.e., United Airlines and Chevron Corp go up and down completely randomly.

Pair Corralation between United Airlines and Chevron Corp

Assuming the 90 days trading horizon United Airlines Holdings is expected to generate 1.64 times more return on investment than Chevron Corp. However, United Airlines is 1.64 times more volatile than Chevron Corp. It trades about 0.08 of its potential returns per unit of risk. Chevron Corp is currently generating about 0.02 per unit of risk. If you would invest  97,200  in United Airlines Holdings on October 24, 2024 and sell it today you would earn a total of  129,800  from holding United Airlines Holdings or generate 133.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

United Airlines Holdings  vs.  Chevron Corp

United Airlines Holdings

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in United Airlines Holdings are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, United Airlines showed solid returns over the last few months and may actually be approaching a breakup point.

Chevron Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chevron Corp are ranked lower than 9 (%) 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 United Airlines and Chevron Corp

The main advantage of trading using opposite United Airlines and Chevron Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Airlines 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 United Airlines Holdings 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.