Correlation Between Chevron Corp and First Trust
Can any of the company-specific risk be diversified away by investing in both Chevron Corp and First Trust 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 Chevron Corp and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Chevron Corp and First Trust Indxx, you can compare the effects of market volatilities on Chevron Corp and First Trust 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 Chevron Corp with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chevron Corp and First Trust.
Diversification Opportunities for Chevron Corp and First Trust
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Chevron and First is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Chevron Corp and First Trust Indxx in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Indxx and Chevron Corp 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 Chevron Corp are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Indxx has no effect on the direction of Chevron Corp i.e., Chevron Corp and First Trust go up and down completely randomly.
Pair Corralation between Chevron Corp and First Trust
Considering the 90-day investment horizon Chevron Corp is expected to generate 1.49 times more return on investment than First Trust. However, Chevron Corp is 1.49 times more volatile than First Trust Indxx. It trades about 0.38 of its potential returns per unit of risk. First Trust Indxx is currently generating about -0.01 per unit of risk. If you would invest 14,702 in Chevron Corp on August 30, 2024 and sell it today you would earn a total of 1,509 from holding Chevron Corp or generate 10.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Chevron Corp vs. First Trust Indxx
Performance |
| Timeline |
| Chevron Corp |
| First Trust Indxx |
Chevron Corp and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Chevron Corp and First Trust
The main advantage of trading using opposite Chevron Corp and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chevron Corp position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.| Chevron Corp vs. BP PLC ADR | Chevron Corp vs. Shell PLC ADR | Chevron Corp vs. Petroleo Brasileiro Petrobras | Chevron Corp vs. Suncor Energy |
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Check out your portfolio center.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 Global Correlations module to find global opportunities by holding instruments from different markets.
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