Correlation Between Whiting Petroleum and California Resources

Can any of the company-specific risk be diversified away by investing in both Whiting 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 Whiting 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 Whiting Petroleum and California Resources, you can compare the effects of market volatilities on Whiting 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 Whiting Petroleum with a short position of California Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Whiting Petroleum and California Resources.

Diversification Opportunities for Whiting Petroleum and California Resources

-0.56

Correlation Coefficient

Whiting Petroleum  California Resources

Excellent diversification

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

Pair Corralation between Whiting Petroleum and California Resources

Assuming the 90 days horizon Whiting Petroleum is expected to under-perform the California Resources. In addition to that, Whiting Petroleum is 1.57 times more volatile than California Resources. It trades about -0.05 of its total potential returns per unit of risk. California Resources is currently generating about 0.03 per unit of volatility. 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	18.03%
Values	Daily Returns

Whiting Petroleum  vs.  California Resources

Whiting Petroleum

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Whiting Petroleum has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's fundamental drivers remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated 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 Whiting Petroleum and California Resources

The main advantage of trading using opposite Whiting Petroleum and California Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Whiting 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 Whiting 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.